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Eastern AfricaINVESTMENT

Ethiopia’s bond market poised for transformation with new trading platform

by Editor
written by Editor

IFC, Authority partnership to birth Ethiopia’s secondary bond market

Ethiopia’s bond market is at a turning point as authorities prepare to introduce a new secondary trading platform.

This disruption comes as the government-dominated primary bond issuance market transitions in tandem with the launch of the country’s nascent stock exchange.

According to officials at the Ethiopian Capital Market Authority (ECMA), developing the bond market is a key part of their broader efforts to transform Ethiopia’s financial system. With the stock market debut imminent, bonds will join equities as one of the new investment instruments available.

Recognizing the bond market reforms as integral to the exchange’s success, ECMA opted not to go alone. The complexity of designing bond products, evaluating stakeholders, and crafting appropriate regulations demanded external expertise.

To this end, ECMA has this week partnered with the International Finance Corporation (IFC), the World Bank’s investment arm. This alliance will help ECMA deliver on its goal of establishing a robust local currency bond market with seamless secondary trading, its officials said.

At the signing ceremony last week, leaders from both organizations pledged their commitment. In attendance were ECMA director general Brook Taye (PhD), governor of National Bank of Ethiopia (NBE) and ECMA board chairman Mamo Mihretu, as well as IFC’s regional management.

Over the next four years, the Ethiopia Capital Market Development Project will see IFC and ECMA collaborate closely on four work streams central to reforming the bond market, which the Director General described as “a crucial step towards strengthening the capital market.”

As Brook explained, they involve; establishment of the secondary bond market, drafting new legal frameworks, evaluating key players, and demonstrations.

Through the deliverables, ECMA and IFC aim to jointly transition the existing government-dominated bond market toward a more private sector inclusive structure that, as Brook stated, is “fundamental to the overall health of the financial system.”

In the first stage, a thorough study and establishment of the bond market that is considerate of the secondary market in local currency will take place. With support from IFC, the ECMA team will design the framework for the bond market on the upcoming stock exchange.

Currently, there is an existing bond market but only at the primary level, with treasury bills issued by the NBE and purchased by the Ministry of Finance through 28, 91, 182, and 364-day maturities. Previously, there was no option to sell the bonds before their maturity dates.

“The establishing bond market will enable liquidation of bonds for listed market players through the secondary market at any time,” Brook said.

As part of the review of the legal framework regarding the bond market, the project team will prepare a detailed document outlining the laws and regulations that must be in place as well as the obligations of state-owned businesses, municipalities, individuals, and corporations expected to dominate the bond market.

The second support area will involve evaluating bond worthiness, screening corporate structures of issuers, and adapting a culture for Ethiopia’s secondary bond market. Evaluation indicators could include environmental, governance, corporate, and social issues, according to the Director General.

As part of the third core deliverable, the two institutions will work to identify the investor base. Drawing on its diverse market experience, IFC will study the investor base in Ethiopia, identify interests in product types, and ensure flawless bond market accessibility for all, as Brook briefed to The Reporter.

“Both bond issuers and investors will have to adhere to strict requirements essential to maintaining a sound secondary market ecosystem,” he said.

One of the key areas and the fourth focus of the partnership will be active participation in the bond market as part of demonstration efforts.

After designing the market, establishing standards and legal frameworks for market participants, and identifying investors, IFC will take the last steps to kick off the secondary market by conducting demonstrative transactions.

“Part of the support will include IFC itself becoming an anchor investor by purchasing bonds as a demonstrative transaction,” he said. “They have also invested in bonds of other countries.”

If bond issuers face short of finance to hire crucial players like investment banks and underwriters at the final stage, the partnership will fill the gap by providing a support mechanism.

The partnership process had been going back and forth for around a year, delayed because the director general position was not filled. Following Brook’s appointment as head of the Authority, the process was expedited; initially planned to finalize in July, it was extended to the September kickoff.

For the Director General, bond market launch won’t take the full four years of the project timeframe. While bond market study will proceed only until the third quarter of next year, onboarding consultants for developing legal frameworks will take place simultaneously, as he planned.

“The four-year period is an excessive timeframe. We will finalize it within one year, especially studying the investor base, identifying the local currency market, and preparing the legal framework to move to demonstration transactions,” he said.

Refraining from disclosing the value of support, Authority heads said to be receiving funding valued at a “significant amount” sufficient to realize the inclusive bond market.

Source; Thereporterethiopia.com

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Banking, Finance & InvestmentBusinessEconomyEthiopiaFinance & Services

Foreign banks granted same entry capital as local banks

by Radarr Africa
written by Radarr Africa

Foreign banks willing to join the Ethiopian banking sector independently will have to fulfill the same minimum threshold of paid up capital as local banks, officials at the National Bank of Ethiopia (NBE) said. The current threshold of five billion birr (USD 95 million) will apply to foreign banks expected to join the Ethiopian market once the open-up takes flight, which is expected within a year’s time.

All other regulations and standards enacted by the central bank to maintain the soundness of the banks, ensure financial inclusion, and keep the balance of profit-seeking with the development plans of the government will be in place both for local and foreign banks. The rule that require banks to surrender 70 percent of the hard currency they generate to the central bank will be also applicable on foreign banks.

“All the laws applicable to local banks will be similarly applicable to foreign banks,” said Fikadu Digafe, vice governor and chief economist of the NBE.

Following the Council of Ministers’ decision in August to liberalize the Ethiopian banking industry, the central bank is finalizing preparations of legal frameworks to embark on the open-up process. The preparations include amending the 2008 Banking Business Proclamation and introducing at least three new directives.

ALSO READ: Ethiopia’s new investment hub anticipates expo to attract $400 million in FDI

The policy and strategy document ratified by the council, dubbed “Investment of Foreign Nationals in the Ethiopian Banking Sector,” and the draft Banking Business Proclamation amendment prepared by the NBE, propose four entry modalities for foreign banks. These include: subsidiary, branch, commercial representative office, and acquiring equity in local banks (or a joint venture). All four modalities are allowed.

In particular, subsidiaries of foreign banks will be on equal footing with local banks. The subsidiary is an arm of a foreign bank that will be fully incorporated in Ethiopia. They will have to meet the minimum paid capital threshold, among other requirements.

Since a subsidiary is a separate legal entity, according to the policy, the parent bank may not support it above and beyond the initial minimum capital requirement. However, some foreign banks may be willing to guarantee the solvency of their subsidiaries in order to maintain their international reputation.

A subsidiary modality may limit intra-group transactions, but a subsidiary can still borrow from its parent bank easily. Ethiopia would have a relatively heavier fiscal burden if it had to bail out a subsidiary than a branch. If shocks originate from the home country, the subsidiary model is much better than a branch in terms of fiscal cost, according to the policy.

The five billion entry capital for foreign subsidiaries, which is around USD 95 million at the current exchange rate, can be less worrying for foreign investors; given the 25 to 40 percent annual return in Ethiopia’s banking business.

The other modality, branch banking, is smaller than a subsidiary by size. But it will have to meet the minimum capital requirement to be determined by the central bank, according to Solomon Desta, vice governor for financial institutions supervision at the NBE.

Foreign banks can have branches in Ethiopia and sub-branches. “It would be easy to close a branch and run away during a crisis or economic downturn, but it can be ring-fenced through a capital equivalency requirement,” the strategy states.

The parent bank of both foreign bank branches and subsidiaries must be listed on the stock exchange in their country of origin, or it must be wholly or mostly owned by the government of their country of origin. Ethiopians will be represented in the management and leadership of both the foreign banks’ subsidiaries and branches in Ethiopia.

Fikadu says a subsidiary is better to generate more foreign currency for Ethiopia. The policy and strategy documents also state that subsidiary and equity acquisitions are the best ways to generate foreign currency for Ethiopia.

The policy states that the representative office will “conduct market research and advice, as well as facilitate trade financing and investment.”

“There are many representative offices in Ethiopia already. But they are not regulated by the NBE because they are not authorized by the NBE. We do not know what they are doing in Ethiopia. Therefore, we have to re-register them in a bid to inspect them under the NBE,” Solomon said.

However, bankers and experts believe the capital requirements for foreign banks should be higher than local banks’ requirements to avoid any risk of cut-and-run. Stringent control over capital fly-out is also recommended.

“Subsidiaries and branches will be difficult to control for the NBE,” Abe Sano, president of Commercial Bank of Ethiopia, said.

He says that equity can bring better forex, skills, technology, and knowledge for Ethiopia but will force local banks to keep putting aside provision because of the parent company’s situation reflecting on the partners. “It is also not clear how the foreign banks will have representation in the local banks’ management, in the case of equity acquisition. Therefore, a joint venture is a better modality but is not included in the new law. So, it must be included.”

Nonetheless, there has been no assessment conducted on whether any of the four modalities Ethiopia allows are suitable for foreign banks.

SOURCE: The reporter

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BusinessEconomyEthiopiaINVESTMENT

Ethiopia’s new investment hub anticipates expo to attract $400 million in FDI

by Radarr Africa
written by Radarr Africa

Officials at Debre Birhan are eyeing almost USD 400 million in foreign direct investment (FDI) as they edge closer to organize the first regional international expo in the city, which has become a preferred choice of many foreign companies involved in the manufacturing sector.

An international investment, trade, and finance exhibition will soon be held in the city, which is home to large manufacturers like Habesha Brewery, Dashen Brewery, Komari Beverages, and Juniper Glass Industries. This event is intended to reenergize national investment imperatives and draw more FDIs, beginning on January 12 and closing 10 days later.

Incentives introduced by the city’s administration and federal authorities, combined with the relative peace and stability that prevailed there, enabled Debre Birhan to grow into a hub for several foreign investors. The expo will provide an opportunity for officials to maintain the reputation they have built over the last five years.

“We aim to at least attract 80 investments using the expo,” said Asegedew Shemelis, Program Director of the Expo.

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The Ethiopian Investment Commission, Industry Parks Development Corporation, and Amhara Regional State have already granted recognition to the expo, which organizers expect will draw 600 investors, 200 traders and over 100 start-ups.

“In terms of global investment, we represent the new frontier. Bearing this in mind, the expo will be a game changer,” Asegdew added.

Currently, the city is home to more than 500 local and international investors and industries. They have invested over 80 billion birr (USD 1.5 billion based on the current market price).

“The government has a target to make the metropolitan city a destination for significant investments in eastern Africa. The upcoming expo will help to advance these goals,” he stated. Debre Birhan is the capital of the North Shoa Zone with a population of almost a quarter of a million people.

SOURCE: The reporter

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Banking, Finance & InvestmentBusinessEconomyEthiopia

Government expects saving of 100 million dollar per year from the ban selected import items

by Radarr Africa
written by Radarr Africa

The central bank of Ethiopia expects saving close to 100 million dollar per year, from the ban imposed on selected import items. 

In a circular written on October 14, 2022, the Ministry of Finance ordered the National Bank of Ethiopia (NBE) to stop approving Letter of Credit (LC) for 38 selected import items. As the result, commercial banks cannot provide foreign currency for importers who request LC for the selected 38 items, for indefinite period of time. The decision came after the macro-economic team conducted studies.

Complete build up (CBU) automobiles, motorcycles, three wheels are among the items banned from import. The others are processed food, beverages, artificial jewelry and flowers, make-up preparations, whisky, postcards, fruit juices, chocolate, pork meat, household and office furniture, vas, hats, bottled water, fruits, carpets, hand and wall watches, human and artificial hair, perfumes, fireworks, bags, umbrella, sea foods, cigarettes and others are among the banned items. Electric vehicles are exempted from the prohibition.

Import of these items, for which LC is already approved and their import is in process, cannot be affected by the prohibition. The ministry stated the prohibitions are made to channel the available foreign currency to most needed items like medicine and basic commodities.

“Roughly we expect to save around 100 million dollar by stopping importing the selected items, which are not critical items. The amount will be channeled to import of critical items especially industrial inputs,” said Fikadu Digafe, chief economist and vice governor of NBE.

ALSO READ: Railway demurrage suffocates exporters and importers for small delays

The selected 38 items are rather considered luxury items. Due to the chronic foreign currency shortage the economy is facing, allocating the scarce foreign currency for import of such non-critical items is deemed waste. The ban is also expected to improve the appetite for domestic products.

“Vehicles that are used for working activities are excluded from the ban. The prohibition is rather imposed on vehicles imported by individuals. This will also incentivize local car assemblers. For instance, banks have been allocating foreign currency for import of beer, while there is sufficient production of beer locally. Such practices are unfair and it has been costing the economy,” said Fikadu.

Government also expects the new measurement will reduce the flow of foreign currency to the parallel market. This is mainly because the foreign currency used to import the items is usually sourced from the black market.

However, on the other end, the businesses of importers, wholesalers, supermarkets, and retailers who were engaged in the business of the 38 items, will be negatively affected.

Especially since supermarkets in Addis Ababa sell imported items and most of the items are included in the ban, supermarkets are in fear of facing shutdowns. Last week, the central bank has also embarked on major crackdown over black market actors, freezing bank accounts of over 665 informal hawala providers.

The foreign currency reserve of the country stood at 3.2 billion as of mid-July, covering only 1.7 months of import bill. The foreign currency shortage is exacerbated especially after price of major import commodities like fuel, fertilizer, wheat and metal spiked in the global market, a domino effect of the war in Ukraine.

However, compared to the country’s official import bill, which surpassed 18 billion dollar this year, the 100 million dollar saving is a drop on the ocean. Yet, the implication of the measurement is incentivizing for local producers. It will also result in a major shift in Ethiopia’s consumer behavior.

SOURCE: The reporter

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BusinessEconomyEthiopiaTransportation & Logisitics

Railway demurrage suffocates exporters and importers for small delays

by Radarr Africa
written by Radarr Africa

Exporters, importers, and logistics companies are irked by the Ethio-Djibouti Railway’s (EDR) exorbitant demurrage charges for small delays. As an alternative to railway transportation, a significant number of businesses are switching to trucking.

Currently, the railway company is penalizing 32,000 birr per wagon if it is delayed by nine hours at Djibouti port or at Endode railway station, the beginning point near Addis Ababa.

The penalty reaches up to 42,000 birr if a wagon is delayed by 12 hours. The charging rate also varies from client to client.

“After the rail-wagon arrives at Djibouti or Endode, it takes some hours before the cargo is unloaded. The penalty rises very fast. They want the containers to be unloaded immediately after the wagon arrives at its destination,” a manager at one of the leading logistics companies in Ethiopia said.

The manager says it is difficult to unload or load exactly when the wagon arrives. “There are also various issues delaying our operations.”

The penalty is double the railway transport cost between Djibouti and Ethiopia. Transporting a 40-foot container between Ethiopia and Djibouti costs 17,206 birr, while two 20-foot containers cost 17,506 birr.

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“The railway transport cost between Ethiopia and Djibouti is cheaper, compared to trucks. It is also safer and faster. However, demurrage costs have become a big headache for us. We have been complaining to EDR for months,” said an exporter who talked to The Reporter on the condition of anonymity. “But currently, we have shifted to using trucks.”

However, according to officials at EDR, the source of the problem mainly emanates from transit companies and cargo owners. “We have analyzed most of the causes of those complaints. But the source of the complaints is usually the cargo owners themselves. There is tons of paperwork that delays our wagons both in Ethiopia and Djibouti, including LCs, customs, and other documentation processes,” a senior official at EDR said.

The official says there are also challenges until the cargo arrives at the railway stations. “All these challenges should not be a concern for EDR. The central bank, customs commission, transporters, cargo owners, and other stakeholders must undertake their duties on time. The EDR cannot take responsibility for other institutions’ inefficiency.”

A rail-wagon must arrive according to the railway’s schedule. But exporters and importers usually fail to honor the time. If a rail wagon is delayed by even an hour, it has a huge impact on the EDR, according to the official.

“The ships at Djibouti cannot wait for us. They always operate on a time schedule. So when they miss our cargo, it is a huge cost for EDR. That is why we must put pressure on cargo owners to be precise. Otherwise, the whole system fails to interface with the sea shipment system. Our rail-wagons take 15 hours to reach Djibouti, maximum,” the official said.

Since the time the ships have to get the containers at Djibouti port is known, the official says, all clients are notified of the precise time schedule in advance. “The inland and sea schedules must be aligned. To avoid any delays, we must maintain a stiff penalty on exporters and importers.” 

On the other hand, cargo owners, the central bank, customs and other stakeholders blame each other. Of course, cargo owners do not know or undertake the nitty-gritty of the import-export process since they outsource the task to transitors.

Most Ethiopian import/export companies outsource almost all the tasks to transitors, who finalize everything from paper work to delivering the cargo.

Just like Ethiopian exporters and importers are represented by Ethiopian transitors, there are counter transitors on the Djiboutian side. The Ethiopian transitors usually email or phone their Djiboutian counterparts and tell them they have dispatched cargo from Ethiopia and vice versa.

However, Ethiopian transistors have no control since it is difficult to find information regarding the process in Djibouti, which also contribute to delays.

SOURCE: The reporter

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Banking, Finance & InvestmentBusinessNigeriaWestern Africa

World Bank Partners with IMF to assess Nigeria’s debt sustainability

by Radarr Africa
written by Radarr Africa

The President of the World Bank Group, David Malpass, has said that the bank will work with the International Monetary Fund to assess Nigeria’s debt sustainability.

Malpass said this during the 2022 annual meetings opening press conference in Washington, D.C. on Thursday.

He said, “We will work with the IMF on an assessment of the debt sustainability of Nigeria but it will be up to Nigeria itself to interact with the various creditors, which include bond holders, official creditors, that are engaged in Nigeria.”

Earlier, the Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, had disclosed that the Nigerian government was in talks with the IMF and the World Bank to restructure the country’s debts.

She said: “It is a fact that Nigeria’s debt has increased over the last three to four years and this increase in debt was occasioned by the different kinds of exogenous shocks that the country faced which is not unique to Nigeria.

“The situation we have by our 2023 projection is that we will be needing to use about 65 per cent of our revenue to service debt. Unfortunately, the cost of debt service is rising because of the rising interest rate globally, which is resulting also in higher debt service costs.

“But our projection from the debt sustainability analysis is that Nigeria is able to cope with its debt service in 2022 as well as in 2023. We have been engaging financial institutions to look at the opportunity to restructure our debt to further stretch the debt service period to give us more fiscal relief.”

ALSO READ: World Bank intensifies efforts to advance the fight against corruption sanctions 35 firms

However, the World Bank Group president said that Nigeria was yet to request the common framework for debt restructuring.

He said, “With regard to the debt restructuring, the World Bank works closely with the IMF on debt situation. Nigeria has not asked for the common framework under the G20 process. That process has been slow acting in Chad, Ethiopia and Zambia. There are some signs of movement in Zambia but still challenging. Nigeria and Ghana did not ask for common framework treatment.”

Malpass further noted that there was an ongoing discussion to ensure that this process could help a country to have a standstill on their debts and choose a path forward on debt restructuring, which means they will get a break on debt payment while they decide on how to restructure their debts.

He also said that Nigeria’s subsidy was too large, undermining the government’s revenue, adding that the situation in Nigeria was concerning.

“With regards to subsidies, to the extent that the government can have them be smaller, meaning if you put a cap on gasoline prices, don’t make a nominal cap in the local terms but allow it to be reduced over time. The challenge for Nigeria is that the subsidies are too large that they undermine the revenues coming to the government from the state-owned oil company.

“Nigeria is actually in a concerning situation because the increase in the oil prices that occurred earlier this year actually ended up hurting the finances of Nigeria because of that large subsidy that’s provided,” Malpass said.

The World Bank Group president further said that some of the challenges in Nigeria included multiple exchange rates and restrictive trade policy.

“Some of the challenges are the dual exchange rates or the multiple exchange rates that are used, which make it very hard to have capital flowing in an efficient way within the country. Also, the trade policy tends to be protective on the import side and restrictive on the export side,” he noted.

Source: New 24

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Banking, Finance & InvestmentBusinessEconomyEthiopia

Central Bank of Ethiopia freezes accounts of 392 currency dealers

by Radarr Africa
written by Radarr Africa

The National Bank of Ethiopia ordered banks to freeze the accounts of over 392 individuals accused of trading foreign currencies in the parallel market.

Yinager Dessie (PhD), governor of the central bank, has confirmed that their assets have been frozen and the case is now under investigation.

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The crackdown is taking place at a time when the difference between the legal market and the parallel market has increased exponentially over the last two months. This week, it climbed to 100 percent.

SOURCE: The reporter

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AgricultureBusinessEconomyEthiopiaUncategorized

Amhara Region seeks one million daily laborers to harvest 6.9million quintals

by Radarr Africa
written by Radarr Africa

One million daily laborers are required by the West Gondar Zone, which is a part of the Amhara Region, to harvest 6.9 million quintals this month.

The call comes as the zone faces a challenge to hiring workers due to the war in Tigray and Wollo, which were major sources of daily labourers for big agriculture farms in West Gondar, though the practice had existed for decades.

The daily laborers are expected to harvest crops planted on 438,000 hectares of land, which is covered by sesame, soya bean and green mung bean.

West Gondar, known for being the major oilseed belt of Ethiopia, covers areas like Quara, Metema Yohannes, and Midre Genet. More output is expected this year, according to the Zone’s Agriculture Bureau.

“We expect more harvest this year and there is no uncultivated land, even mountains are covered with oilseeds,” said Ephrem Worku, deputy head of the Bureau.

In 2021 Meher season, 930,000 quintals of oilseed were harvested from 130,945 hectares of land, according to the Ethiopian Statistics Service (ESS). The average yield is seven quintals per hectare. The figure is expected to double this year.

“We have made a mass cultivation in cooperation with investors. Though our first intention was to harvest using mechanized farming, we did not manage to get that,” added Ephrem, explaining the reason behind the call for over a million daily laborers.

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The task of the office is limited to recruiting daily laborers and facilitating the hiring process. Investors are expected to make the payment and they are expected to incur at least five billion birr.  The daily workers will be paid between 250 birr and 300 birr depending on the type of work.

A camp has been readied for the accommodation of workers, according to Ephrem, who said: “Medical treatment will be available in case of emergency.”

Authorities in the zone have also been working with federal and regional security agencies and the Ethiopian National Defense Force (ENDF) to improve the security situation in the area.

“Our zone is now very stable and security forces are ready to make the area safe during the harvesting, which could take at least 20 days.”

SOURCE: The reporter

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Banking, Finance & InvestmentEconomyEthiopiaInsurance

Central bank of Ethiopia raises minimum paid-up capital for insurance company

by Radarr Africa
written by Radarr Africa

The National Bank of Ethiopia (NBE) raised the minimum paid-up capital of insurance firms by six-fold. The revised ‘Minimum Paid-up Capital for Insurance Company’, which is effective as of September 15, 2022, replaced the existing threshold introduced in 2013.

The new capital requirement to obtain a general insurance license is 400 million birr, up from 60 million birr. The minimum capital for long-term insurance licenses was also raised from 15 million to 100 million birr. A company needs to deposit 500 million birr in a closed account to obtain a license for both, which was 75 million birr under the old directive.

Existing insurance companies whose paid-up capital is below the new threshold are given a five-year window period to meet the new minimum threshold by the end of June 30, 2027. However, these insurers are required to submit an action plan to the NBE by October 16, 2022.

“There is plenty of time to fulfill the requirement. The minimum requirement was very low from the outset,” said Zafu Eyessueswork, a veteran in the industry and founder of United Insurance and Hibret Bank. 

Fikru Tsegaye, an insurance profession known for his commentaries in the sector, also welcomed the decision. “The inflation has been eating the capital of insurers. If you compare capital of insurance companies against dollar, it was declining, so the amendment is a step in a right direction,” said Fikru.

Out of the 18 existing insurance companies in the country, only seven have capital of more than 500 million birr, according to NBE’s report. The insurance industry has been struggling with low market penetration and declining premiums in a stiff competition for the limited market niche.

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However, the old directive remains active for new insurance firms in the pipeline until September 15, 2023. This means organizers of new insurance firms can attain a license under the existing directive in the next year. A discussion is underway to adjust license fee required to acquire new license and renew existing ones. The fee is expected to be adjusted by 2000 percent, though that is still under discussion.

The new directive states that insurance companies in the process of share subscription that successfully collect a minimum paid-up capital of 60 million birr for general insurance business, 15 million birr for long-term insurance business, or 75 million birr for both, and submit a final application to NBE within one year after the effective date of the new directive, shall get the license.

Industry players called the new directive “hair-raising,” as the insurance industry’s growth remains nascent. “Raising the minimum capital from 75 million to 500 million birr at once is very difficult. The new directive is inconsiderable to the difficulties the industry is facing. The industry has achieved very little capital growth in the past 20 years due to the nascent environment. The NBE itself has contributed to the weakness of the industry,” said an insurance consultant speaking to the reporter regarding the new directive.

“The NBE was never giving appropriate attention to insurance, as the central bank was primarily occupied with banks. We have been requesting the government for the insurance industry to be regulated by a commission, authority, or agency separate from the NBE. We believe this will help the insurance industry to get better support and better attention,” the consultant explained.

SOURCE: The reporter

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Banking, Finance & InvestmentBusinessEthiopiaTransportation & Logisitics

Afrexim bank guarantees import of Sinotrucks worth USD 63 mln

by Radarr Africa
written by Radarr Africa

Afrexim Bank is guaranteeing the import of 745 trucks payable by four local banks on behalf of Ethiopian transport businesses with a USD 63 million loan.

Afrexim Bank guaranteed Jampur International FZE, a Dubai-based supplier of Sinotruck. The trucks will be supplied by Jampur from the Chinese truck manufacturer. Jampur is selected by the transport companies after Sinotruk, the Chinese manufacturer refused to directly supply the trucks on deferred LC.

The trucks have already been prepared for export from China and are scheduled to arrive in mid-September. The guaranteed deferred payments for Jampur will be made by Ethiopian local banks over the next two years.

On the other end, the National Bank of Ethiopia (NBE) assured Afrexim to finalize the payments of the 63 million dollar within the next two years. However, if Ethiopian commercial banks fail to pay the postponed LC during the next two years, Afrexim will be accountable for Jampur.

End of 2020, a procurement committee comprising 168 Ethiopian transportation companies requested the Ministry of Transport and Logistics (MoTL) to purchase 2,600 trucks. Following MoTL’s positive nod, the National Bank of Ethiopia (NBE) allowed the transport companies to open deferred LCs for the 2,600 trucks.

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For 745 of them, a letter of credit (LC) has been opened, for which Afrexim gave the guarantee confirmation. Once their LC is opened, the remaining 1,855 trucks will be processed through time as well.

All trucks will be delivered using a delayed payment plan with guaranteed credit.

The NBE has already directed Awash, Enat, Abyssinia, and the Commercial Bank of Ethiopia to prepare and pay the USD 63 million to Afrexim Bank before the two-year deadline.

Jampur sought Afrexim to ensure the long-guaranteed confirmation after losing faith in local Ethiopian banks.

Despite the fact that the MoTL and NBE initially permitted local commercial banks to provide the guarantee, Jampur refused to accept the assurance from Ethiopian commercial banks. After failing to honor a previous USD 30 million credit supply deal, Sinotruck and Jampur declined to sign into any credit supply agreement directly with Ethiopian commercial banks.

“We don’t trust Ethiopian banks to arrange the forex,” said a Sinotruck representative in Ethiopia who spoke on the condition of anonymity to the reporter.

Tikur Abbay Transport Plc is one of the transport companies that ordered the vehicles. It had planned to buy 250 trucks at first, but owing to pricing changes, it ended up with 231.

“We requested a USD 18 million letter of credit from Awash Bank, and we received the confirmed letter of credit from Afrexim Bank two weeks ago. We paid a 30 percent deposit in birr on the pricing of the trucks in Awash,” Seyoum Bemelaku, CEO of Tiku Abbay Transport, stated.

SOURCE: The Reporter

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