The accepted wisdom is that you can’t have economic growth and mitigate against climate change at the same time. Not so, according to a new study. Ethiopia was one of three global case studies taking part in a year-long research project to prove this theory. The implications, for the world, are enormous.

Achieving economic growth and prosperity while reducing climate change isn’t – contrary to popular opinion – a contradiction in terms, according to global research and a new international report that drew on Ethiopia’s experiences.

Launched jointly in the Ethiopian capital, Addis Ababa, and in New York, the New Climate Economy (NCE) is the flagship project of the Global Commission on the Economy and Climate, an independent initiative founded in September 2013 to examine whether lasting economic growth, while also tackling the risks of climate change, is achievable. However, the NCE’s seismic message that both are possible has, not surprisingly, been a headline grabber.

“The notion that economic prosperity is inconsistent with combating climate change has been shown to be a false one that doesn’t hold,” says Helen Mountford, director of economics at the Washington-based World Resources Institute, and future NCE Global Program Director. “It’s an old-fashioned idea.” This economic and environmental turnaround has been made possible by structural and technological changes unfolding in the global economy, and by opportunities for greater economic efficiency, according to the NCE report.

But the next 15 years will be critical: the global economy will grow by more than half, a billion more people will move to live in cities, and rapid technological advances will continue to change businesses and lives. It’s estimated around $90 trillion will be invested in infrastructure in the world’s urban, land use and energy systems. How all these changes are managed, the report argues, will shape future patterns of growth, productivity and living standards.

Achieving economic growth and prosperity while reducing climate change isn’t – contrary to popular opinion – a contradiction in terms, according to global research and a new international report that drew on Ethiopia’s experiences.

“Humankind is facing one of the biggest challenges in history, and science has rested its case,” Felipe Calderón, former President of Mexico, and NCE chairman, said during the New York launch. “But the main obstacle is the general perception that combating climate change implies economic reductions that governments and businesses don’t want.”

Hence the report seeks to inform economic decision-makers in both public and private sectors – especially CEOs of major companies and the heads of major global economic organizations – many of whom recognize the serious risks posed by climate change but also must juggle more immediate concerns such as jobs, economic competitiveness and poverty.

If such decision makers can be brought onside, the hope is that well-designed policies, initiated by them, can make growth and climate objectives mutually reinforcing in both the short and medium terms. While in the longer term, if climate change is not tackled, it is feared that growth itself will be at risk.

Ethiopia’s example

Addis Ababa doesn’t usually share a mantle with New York, but it did during the 16th September launch of the NCE because Ethiopia is one of three countries – China and India being the other two – serving as case studies for research into issues such as macroeconomic policy and impacts; innovation, energy, finance, cities; and agriculture, forests and land use.

Ethiopia was also one of the Global Commission on the Economy and Climate’s seven founding members – the others being Colombia, Indonesia, Norway, South Korea, Sweden and the UK. The Ethiopian Development Research Institute played an important role in a global partnership of leading institutes informing the NCE report.

One of the most critical challenges facing developing countries is achieving economic prosperity that is sustainable and counters climate change – a lesson that Ethiopia knows better than most. Northern Ethiopia suffered significant soil erosion and degradation before attempts were made to counter ecological destruction.

Ethiopia has moved on to recognizing how its abundance of waterways offers huge hydroelectric generation potential. Today, massive public infrastructure works are attempting to harness this potential. Ethiopia now finds itself an authority on how to achieve economic growth in a sustainable manner.

“Ethiopians can give answers whereas often in industrialized countries people aren’t sure what to do,” Yvo de Boer, director general of Global Green Growth Institute, an international organization focused on economic growth and environmental sustainability, said. “Ethiopians should be asked.”

Opinion on this is somewhat more restrained within Ethiopia itself. “Regarding lessons from Ethiopia, I believe that we are still in the learning phase regarding building a green economy,” says Getahun Moges, director general of the Ethiopian Energy Authority.

“However, its bold action in anticipation of future gains is something countries need to focus on – I believe every country has potential regarding building green economy, the issue is whether there is enough political appetite for this against short-term interests.”

Despite the sustainability challenges Ethiopia still undoubtedly faces, its role as an important case study of a developing economy has empowered the NCE to come up with what those behind it think is a solid game plan to offer to the world.

“By focusing on cities, land use, and renewable and low-carbon energy sources, while increasing resource efficiency, investing in infrastructure and stimulating innovation, a wider economy and better environment are achievable for countries at all levels of development,” says Trevor Manuel, a member of the Global Commission on the Economy and Climate, and a former Finance Minister of South Africa, now Minister and chairperson of the South African Planning Commission.

Africa led?

Some argue Africa can provide a global example when it comes to economic growth and tackling climate change due to its circumstances. “Africa can be a world leader in terms of climate change solutions,” says Carlos Lopes, executive secretary for UNECA. “It can make sure that commodities are transformed nearer to their sources and thereby reduce CO2 – it doesn’t make sense for things to be sent from Africa to Asia to be manufactured and then shipped to Europe.”

Such action would likely have an additional benefit of reducing many social pressures that continually cause problems in Africa, Lopes adds. Others, however, feel that rather than Africa providing an example to countries in other continents, the emphasis should squarely be on finding African solutions that work for its countries.

“Africa needs to find its own paths to climate resilience since its circumstances are so different from many other parts of the world,” says environmental economist Gunnar Köhlin, director of Sweden-based Environment for Development Initiative. “Sub-Saharan Africa has still not invested fully in a mature energy generation and distribution system. There are therefore still many choices to be made in supplying households with energy that is both not aggravating climate change and at the same time is resilient to the impacts of climate change.”

On the global stage, the hope is that the NCE and its findings will encourage future agreement and cooperation when nations discuss and implement international climate change policies, allowing the ghosts of the Kyoto Protocol and the Copenhagen Accord – previous efforts judged ineffective – to be laid to rest.

But others point out how previous sustainability initiatives have struggled to achieve tangible results, especially in Africa, begging the question: What will be different this time?

“In the last 10 to 15 years, new policy developments have started to take hold,” Mountford says. ”Yes, there have been failures, but there have been many successes and so we have taken stock of these – now we are at a tipping point, with the lessons learned from these recent experiences and significant technological innovations giving us new opportunities.”

In light of this, the NCE and its recommended 10-point Global Action Plan give cause for celebration, says Manuel, adding: “For too long we’ve been told that there you can’t develop and mitigate – this report inverts that logic and demonstrates that it’s possible to do both. Africans across the board will benefit from this.”

The true test of the NCE’s merit and value will come at the next major convention on climate change due in the French capital, Paris, in 2015, when world leaders will wrestle with, and attempt to agree on, international strategy.

“Some academics say we are too optimistic,” Manuel says. “But if you are from the developing world and you don’t have optimism then you have nothing.”

[AfricanBusinessMagazine]

Ethiopia and Portugal should boost their trade and investment relations utilizing the long-standing diplomatic cooperation of the two countries, Portugal’s Ambassador to Ethiopia said.

In an exclusive interview with Ethiopian News Agency, Ambassador Antonio Luis Cotrim said the economic tie of the two countries is weak, even if the diplomatic relationship spanned for many years.

The ambassador, who noted that the annual trade exchange of the countries is not more than three million Euros, added that both parties have started activities to increase the amount.

Portugal imports coffee and leather products while it exports pharmaceutical products to Ethiopia.

Although many Portuguese investors have shown interest in investing in Ethiopia, it is only one company which is engaged in renewable energy generation in Tigray State, the ambassador stated.

According to Ambassador Cotrim, the countries have signed agreements that strengthen the bondages of the governments and the private sectors in different sectors.

The signed agreements cover education, politics, youth and sport, culture and media, he indicated.

The countries are also working closely in international politics, economy and security issues in addition to bilateral cooperation.

Ambassador Cotrim admired Ethiopia’s efforts in bringing peace and stability to Africa and East Africa in particular.

The cultural and people-to-people relationship of Ethiopia and Portugal is around 500 years, according to the ambassador.

A concert will be held at the National Theatre next month to commemorate the occasion, he added. A painting exhibition will then be held in January.

[ENA]

With the global economy bouncing back slowly but surely from the recession, some of the world’s top emerging economies are seizing the opportunity to shine

China, the world’s most successful emerging market since the dawn of the millennium, just surpassed the U.S. as the globe’s largest economy in terms of purchasing power parity. Meanwhile, India, Brazil, and Russia have all captured spots among the globe’s 10 largest economies, catapulted to the top by growing middle classes, urbanization, and large populations. But Russia’s and Brazil’s economies in particular have slowed down recently, and even China has felt pressure from a swelling housing bubble and slowing foreign investment.

So just which countries are taking up the mantle as the world’s fastest climbers? Let’s take a look at the five fastest-growing countries out of the world’s top 80 overall economies — or those with projected 2014 GDPs over $100 billion, as estimated by the International Monetary Fund’s World Economic Outlook on a purchasing power parity basis — and see whether or not these risers can repeat the kind of success that has boosted the BRICs into international prominence.

5. Nigeria: 9.3% projected 2015 GDP growth

Perhaps no country in Africa has vaulted into the spotlight as recently as Nigeria has.

The West African nation’s population has surged, booming by more than 24% between 2005 and 2013 to more than 169 million people. At the same time, Nigeria has capitalized on the growing worldwide demand for energy to emerge as an oil leader: According to OPEC, of which Nigeria is a member, the country boasts more than 37 billion barrels of proven oil reserves. The country has turned its nearly $90 billion in annual petroleum exports into a more than doubling of its GDP between 2005 and 2013.

Yet despite the country’s energy wealth, major multinational oil corporations have backed away from Nigeria lately. Both Chevron and Royal Dutch Shell , among other top energy leaders, have divested oil assets in the resource-rich country recently. Costs for doing business in the country have mounted for top corporations, with oil theft and government intervention chiefly to blame. Shell even estimated that theft and other hurdles in the nation cost the company up to $1 billion in 2013 across its oil and natural-gas operations.

As its energy sector takes a hit, however, Nigeria is hoping to keep up its economic growth through new industries. The country has worked on reforming its telecom, technology, and financial sectors to diversify away from the reliance on oil and gas. Nigeria will need all the growth it can muster, however: The IMF projects the country’s population to swell by another 14.5% over the next five years. The combination of falling energy prices and Nigeria’s unstable security situation, exacerbated by the rise of terror organization Boko Haram, also present steep hurdles for this emerging regional leader to overcome if it wants to maintain its growth, attract foreign investment, and cement its place among the world’s economic leaders in the years to come.

4. Qatar: 9.7% projected 2015 GDP growth

Qatar, the world’s richest country by per-capita GDP, has jumped to the top of the globe’s rankings behind its own energy boom. The Middle Eastern country of just over 2 million people is powered by its energy sector: Natural gas and oil production makes up nearly 60% of Qatar’s GDP, and the country boasts more than 25 billion barrels of proven crude reserves. That natural wealth has greatly enhanced the country’s international recognition; Qatar is slated to become the first Arab nation to host the FIFA World Cup in 2022. Its standard of living is also expected to continue surging.

But falling energy prices have recently threatened traditional oil powers. Qatar’s Emir has denied any significant negative impact to the economy as oil has plunged, but the volatility of energy prices means that the country will need to continue diversifying if it wants to lay down a groundwork of economic stability. That plan’s well underway: Infrastructure has boomed as international construction companies have flocked to Qatar. The construction industry is estimated to contribute more than 13% of the country’s real GDP in 2015, with investment in transportation boosting Qatar’s rail and air industries as well.

However, fears of inflation have risen as Qatar’s infrastructure has blossomed, and concerns over labor abuses, among other human rights concerns, have threatened the country’s image abroad. In order to boost tourism prospects and to attract major multinational companies to invest for the long run, Qatar will need to adjust for such political and social concerns.

3. Ethiopia: 10.5% projected 2015 GDP growth

Qatar and Ethiopia couldn’t be more different, high economic growth aside. Thirty years ago, Ethiopia weathered a “biblical famine” that cost the lives of more than 1 million people, and the country’s still transitioning into modernity today. Agriculture makes up nearly half of Ethiopia’s GDP, according to the CIA World Factbook, and foreign investment has only recently begun to take hold in the African nation.

That investment, however, could be the start of something special. As traditional low-cost manufacturing hubs such as China have seen wages and standards of living rise, companies seeking cheaper labor have sought greener pastures. Ethiopia could be one of the biggest beneficiaries of this shift: China is estimated to lose up to 85 million manufacturing jobs in coming years, and Chinese apparel companies, among other firms, have begun to set up shop in Ethiopia to capitalize on the low wages.

Still, the country has a long way to go before even that boom will truly take hold. Ethiopia’s infrastructure is a mess, increasing the costs for foreign companies looking to lay down roots. The region’s instability isn’t helping the emergence of a stable economy, either, as streams of refugees from neighboring Eritrea have sought refuge in Ethiopia. But considering Ethiopia’s current low standards of living and its potential as a low-cost manufacturing giant — much as China used to be — there’s nowhere to go but up for this economy.

2. Myanmar: 10.5% projected 2015 GDP growth

Myanmar, one of Southeast Asia’s poorer nations, has seen its economy pick up steam since a series of economic and political reforms began in 2011. After years of military rule, the slow transition to democracy has attracted foreign investment, which is expected to climb by 25% in both 2014 and 2015, with much of the funds flowing from China and Singapore. As in Ethiopia, low wages are attracting companies that have seen cheap labor dry up in formerly attractive nations like China, and Myanmar is also home to a growing commodity sector, with oil, copper, and other resources still mostly untapped.

Despite that, the country has miles to go to establish a stable economic platform for foreign multinational corporations to stand on. Myanmar’s transportation and infrastructure network is in need of major investment, but more than that, the country’s nascent transition to democracy needs time. Concerns over the re-establishment of harsh military rule abound, and the nation’s legal and bureaucratic framework is nearly nonexistent.

The nation’s poverty and low standards of living are conducive to high growth if Myanmar can develop its human rights while building its political and legal foundation, but U.S. foreign investment has been elusive. According to Bloomberg Businessweek , American corporations have invested less than $250 million in Myanmar — and don’t expect that number to rise significantly unless real progress is made.

1. Libya: 17.1% projected 2015 GDP growth

Talk about countries still emerging from the fire. The fastest-growing country among the world’s 80 largest economies, Libya, has struggled to emerge from its 2011 civil war and overthrow of former leader Muammar Qaddafi. The energy-dependent nation has since worked to ramp up oil production, but ongoing fighting between armed factions has threatened that plan — and scared away foreign investment, much of which dried up as foreign energy corporations from Europe to China evacuated the North African nation three years ago.

Now? The IMF’s projected growth, and the country’s economy as a whole, is in serious danger as Libya backslides toward war. The OPEC member still produces more than 800,000 barrels of oil per day. But armed insurgents have battled for control of major oil fields this year, with attackers briefly taking control of the country’s largest field earlier this month. Libya looks years away from political stability, and until then, foreign investment looks scarce at best. The nation’s high projected growth is more a testament to its comeback from the 2011 violence, but if Libya breaks out into civil war again, this fragile economy — and any prospects for foreign energy companies hoping to capitalize on Libya’s vast oil resources — will be in serious trouble.

Is economic growth all that it’s cracked up to be?

Surging energy sectors and the rise from long-standing poverty make up the biggest reasons why most of these nations are set for future growth, but with the transition to higher wealth comes risks. Fragile political situations in nations such as Myanmar and Libya make foreign investment a tricky proposition, and loose bureaucratic frameworks make doing business in nations such as these far more difficult to predict for top multinational corporations. Major economies such as the U.S., Europe, and Japan are struggling for growth, but for top businesses, economic stability often trumps growth potential.

[Nasdaq]

The World Bank recently issued its annual flagship report which measures the ease of doing business across the countries of the world.

Entitled Doing Business 2015: Going Beyond Efficiency, the report presents quantitative indicators on business regulations and the protection of property rights that can be compared across 189 economies. Current as of June 1, 2014, the report ranks Ethiopia 132nd out of the 189 countries measured, which is three places lower than its rank in the previous year.

The report measures regulations affecting 11 areas of the life of a business. Ten of these areas are included in this year’s ranking: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency. Accordingly, Ethiopia stood 168th in starting a new business, 28th in dealing with construction permits, 82nd in getting electricity, 104th registering property, 165th in getting credit, 154th in protecting minority investors, 112th in paying taxes, and 50th in enforcing contracts.

One of the strategic areas on which the Government of Ethiopia is working to grow the country’s economy is Foreign Direct Investment (FDI). Aside from putting in place an enabling policy and regulatory framework, the government is undertaking different things aimed at attracting foreign investors including promoting Ethiopia as a preferred investment destination. Though securing FDI is not that easy, a number of foreign investors have started to invest in Ethiopia thanks to the efforts the government has made. This said, one would not be mistaken to state that the country has not drawn the kind of FDI inflow it is capable of and indeed ought to have. This below-par performance is chiefly attributed to bureaucratic red tape.

Investors look at a lot of things when they contemplate where to spend their money. It’s only after weighing different countries against a mix of critical factors including ease of doing business that they will decide to invest in any one country.

In spite of the spike in the level foreign investment in Ethiopia over the past decade, the Doing Business report shows that Ethiopia is not keeping up pace with other countries in terms of facilitating the conditions which drive greater FDI influx. The patently cumbersome government bureaucracy in Ethiopia tends to complicate simple matters and subject investors to delays that force them to incur unnecessary expenses. It’s also a breeding ground for corrupt public servants which are loath to lift a finger without a bribe. Consequently, it may well prove to be a deterrent to winning over more foreign investors to opt for Ethiopia.

One of the essential factors on which the decision of foreign investors to invest in Ethiopia hinges is the availability of land. Presently, it’s quite a challenge for domestic and overseas investors alike to acquire land despite the government’s assertion that it has availed adequate land for investment purposes. The huge bribes that are being demanded for the provisioning of land are increasingly driving away foreign investors. This threatens to mar the investment environment.

Another area where bureaucratic red tape is pervasive is tax payment. The 112th rank that this year’s World Bank places Ethiopia under the tax payment category is three places down compared to the previous year. The problem persists to this day despite the frequent complaints of foreign investors and continues to discourage both existing investors and those planning to invest here. Like land, tax payment is an area which is beset by widespread corruption and needs to be tackled head on by the government in order to address foreign investors’ grievance that they are slapped with huge tax bills they do not owe. Needless to say we are not of the opinion that foreign investors must not pay their fair share of tax; we are saying that they should be treated the same as other taxpayers.

A further area which dissuades those thinking of investing in Ethiopia is the lengthy customs clearing process involving import and export goods. Coupled with high transportation cost and logistical hurdles, which are brought about by the inadequate infrastructures, it is a powerful disincentive that the government has to deal with decisively.

The report ranks Ethiopia 168th when it comes to starting a new business. If foreign investors which are eyeing Ethiopia are led to believe that obtaining the registration, investment and business licenses necessary to start operation is a complex process, they are liable to look elsewhere, thereby denying the country of valuable opportunities. Hence, this is an impediment for which the government is obliged to seek a prompt solution.

All in all there is no much use conceding that bureaucratic red tape is hindering Ethiopia’s potential to attract a greater volume of FDI inflow. Therefore, it is imperative that the government demonstrates the resolve to eliminate the problem from its root. Failure to take immediately concrete steps towards this end can have the effect of slowing the brisk growth the country has been registering in the last ten years.

[TheReporterEthiopia]

The Power Africa meeting, a continental energy talk held for three consecutive years in Addis Ababa, has been attracting interest from energy industry representatives.

Experts who attended the two day meeting at Radisson Blu from November 20 have attracted international financiers, contractors, investors and international organizations, eager to be part of the exciting developments in the energy sector.

The number of private sector participants is increasing, indicating that companies want to be involved in developing the energy sector on the continent.

“Around 70 private sector participants showed up and that is a dramatic increase from the 50 last year,” experts in the energy sector said.

“I talked with every participant in my office before they came to the conference, which will provide insight in selecting the most appropriate and enthusiastic developers,” Mekuria Lemma, plan and program head of Ethiopian Electric Power (EEP), told Capital.

“We have a huge interest in expanding the private sector’s involvement in power development and because of that this is a good opportunity for us to attract potential investors,” Mekuria who presented his enterprise’s strategy and future projects at the meeting, added.

Recently Ethiopia ratified a law mandating private sector development of electric power from wind, solar, geothermal and hydro.

EEP and Reykjavik Geothermal (RG) also signed an agreement allowing the company to sell electricity to EEP. Currently, RG is developing the Corbeti Geothermal project that will generate 1,000MW when completed.

Ethiopia wants to use both the private and public sectors to expand power generation.

According to the country’s law, power developers have to sell the energy to EEP, which has a state monopoly on power distribution.

[Capital]

Agriculture makes up more than 43% of the Ethiopian GDP, generates over 70% export values and provides livelihood for more than 85% of its citizens (UNDP 2013). Though Ethiopia’s agricultural potential is considerable, the sector remains focused on primary production – on the supply end of farm to market chains – and provides little of the value added benefits the nation should and could receive. Even in primary production, productivity per hectare remains very low.

The constraints emanate from farm input supply market failures, inadequate private sector activity in processing, inability of farmers to produce high quality product standards and the failure of market intermediaries to efficiently link smallholders to markets in which product differentiation is rewarded with higher prices.

Precise Consult International (PCI), under a cooperative agreement with USAID-Ethiopia, is implementing a project entitled: “Ethiopia Sustainable Agribusiness Incubator (ESAI)”. ESAI has been organized and successfully working to transform the Sesame, Honey and Dairy subsectors of Ethiopia.

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Mr. Dario Minutella is a Manager at A.T. Kearney, which is a leading global management consulting firm with offices in more than 40 countries. A.T. Kearney is a partner-owned firm, committed to helping clients achieve immediate impact and growing advantage on their most mission-critical issues. Mr. Minutella has spent almost two years in Addis Ababa, working with the Government of Ethiopia to establish and launch ALLE (Ethiopian Trading Enterprise), the first cash & carry chain in Ethiopia, whose objectives are to modernize trade, lower inflation, stabilize prices, ensure consistent supply of quality fast moving consumer goods and provide a platform for the introduction of new products in the Ethiopian market.

Mr. Nuredin Mohammed is the General Manager at the Ethiopian Trading Enterprise (Alle Bejimla, or simply ALLE), a public enterprise initiated by the Ethiopian government. The primary mandate of the enterprise is to increase affordability of goods to consumers, support increased competition and investment in the private sector, and to facilitate the development of a modern trade sector in Ethiopia. Mr. Nuredin served as an Advisor to the State Minister of Trade. He also was the Director of the Trade Registration and Licensing Directorate at the Ministry of Trade.

Mr. Adam Abate is a founding partner of Apposit and is responsible for the business development and operations of the company. Apposit focuses on mobile financial services, data collection and dissemination, and supports agricultural value chain actors by collecting, managing and disseminating relevant information to stakeholders. Mr. Abate has 12 years of experience working in software product development. Most recently, as Director of Information Technology for the Kennedy School of Government, Harvard University, Mr. Abate managed the development and implementation of a nationwide integrated financial management system for public finance in the Ministry of Finance and Economic Development in Ethiopia.

Turkish investors that are interested to invest in Ethiopia’s capital, Addis Ababa, housing development as well as the city construction works held discussion with President Mulatu Teshome on Thursday, November, 27, 2014.

Mulatu on his part expressed the Ethiopian Government’s willingness to support the investors and that the opportunity will open doors for experience sharing.

The delegation head, Erdogan Bayraktar, noted the investors have finished preparation to buld a model city in Addis Ababa. According to Ethiopian News Agency (ENA), the city has green urban development will have full infrastructure.

The Turkish business tycoons are expected to hold discussion on ways of finalizing the venture with the Mayor of Addis Ababa, Minister of Urban Development and Housing Construction and Minister of Finance and Economic Development.

[Diplomat]

Following the decision that was passed by the Government of Ethiopia to dip into the international money market, it announced to investors on Wednesday that it has issued a sovereign bond amounting one billion dollar, sources told The Reporter.

Sources also disclosed that the sovereign bond that Ethiopia offered for the first time is revealed to investors in London, where the team is also scheduled to travel other European cities and the US to make the offer known to investors there. According to sources, the certificates offer six to seven percent interest rates with a maturity date of ten years.

High-level delegation led by Sufian Ahmed, minister of Finance and Economic Development (MoFED), including Teklewold Atnafu, Governor of the National Bank of Ethiopia (NBE), Fisseha Abera, International Financial Institutions Cooperation Directorate Director at MoFED, Wasihun Abate, Director of Legal Division at MoFED and Mezgebu Ameha, Macro-economy Policy and Management Directorate Director have traveled to Europe for this purpose.

The move was expected after the House of Peoples’ Representatives (HPR) discussed in a closed session and gave the responsibility to MoFED to issue a sovereign bond.

Though The Reporter approached Ahmed Shide, state minister of MoFED, on the event of the signing ceremony of a loan agreements between the Government of Ethiopia and the World Bank and African Development Bank, he declined to disclose the amount of the bond issued in London. However, he did say that “the interest rate that the bond got was quite reasonable.” According to the state minister this is mainly because the bonds were offered at the right time.

The move to issue an international sovereign bond came after Ethiopia got a B+ rating by renowned credit rating agencies in May 2014 namely, Moody’s, S&P and Fitch. Last month MoFED selected J.P. Morgan and Deutsche Bank Group from America and Germany, respectively, to organize and facilitate meetings with potential investors with Ethiopian delegation across Europe and the US.

Sources also said that the delegation will conclude its tour next week in the US and they are expected to reveal the amount they were able to sell to investors.

Redwan Hussein, head of Government Communication Affairs Office with a ministerial portfolio, while briefing local journalist two weeks ago said that the foreign currency that would be obtained from the sales of sovereign bonds will be used to finance mega government projects which are grappling with severe hard currency shortage.

[TheReporterEthiopia]

Dubbed as champion product approach, Ethiopia is set to brand its leather and leather products made of sheep skin to Japanese market and beyond.

Sponsored by the Japan International Cooperation Agency (JICA), the champion product approach movement is something which is said to seek and improve Ethiopia’s image and brand the country’s finest sheep leather and finished leather products abroad.

Noriyuki Nagai, one of the four consultants hired by JICA to undertake the job of championing sheep leather to become a brand product, told The Reporter that the short term target of the champion product approach is to introduce Ethiopia’s hi-end sheep leather and leather goods to the Japanese market.

To that end, stakeholders held the second phase of the champion product approach meeting on Thursday at Harmony Hotel located behind Edna Mall. The second phase meeting deliberated on branding issues such as logo and motto, which are expected to be finalized early 2016.

Among the candidate sectors and products which the project looked at, sheep leather has become the alternative product to go with, Nagai said. “Ethiopian coffee beans exist in Japanese market. Hence, there is no way to brand coffee there. We are trying to promote sheep leather after we have checked out that the feasibility and the potential to supply the Japanese market and others,” he said.

Kimiaki Jin, chief representative of JICA Ethiopia office, said that the sheep leather has been chosen to represent Ethiopia as a new branded product for the Japanese market due to its the accessibility because of the country’s huge potential.

According to Fistum Arega, director general of the Ethiopian Investment Commission (EIC), the branding and improving the country’s image via the sheep leather is where the government is gearing up towards.

EIC coordinates the branding project with the Ministry of Foreign Affairs, Ministry of Industry, Leather Industry Development Institute, Ethiopian Leather Industries Association and the Ethiopian Chamber of Commerce and Sectoral Association also taking part.

Currently, branding Ethiopia’s sheep leather project has involved three local businesses which are said to be “partner companies”. Leather Exotica and Enzi and ELICO Awash Tannery are the local firms which are selected for the champion product project due to their designing and production qualities respectively, according to the consultants.

Fistum said that the branding project will be scaled up further to the mass production stage after succeeding on market penetration and image building tasks. According to Fistum, champion product approach has been successful in countries like Indonesia where they had become the famous producers of Indomie noodles worldwide. He also recalled that the Office of the Prime Minister of Japan has recently sponsored the promotion of Kaizen – a renowned Japanese management philosophy to improve productivity and quality – and how the philosophy has become the norm of the manufacturing sector in Ethiopia.

Currently, Ethiopia has three coffee brands internationally recognized after years of relentless battle with international giants like Starbucks. The fine coffees of Harar, Yirgachefe and Sidama are registered as trademarks of Ethiopia.

[TheReporterEthiopia]

The oldest modern mineral water, Ambo Mineral Water, a.k.a. Ambo Tsebel, was bought jointly by the UK-based multinational brewer, SABMiller PLC, and SouthWest Development (SWD), will join the Coca Cola family as SABMiller.

The Coca Cola Company and Coca Cola Sabco announced their intention to form a new company called Coca-Cola Beverages Africa.

The new business is said to be the biggest bottler of soft drinks and non-alcoholic beverages in Africa and the 10th largest in the world, with an annual revenue of USD 2.9 billion. As part of the deal, SABMiller, which is already a significant bottler of Coca Cola products across Africa, will sell its Appletiser soft drinks brands to the Coca Cola Company to avoid competition between the two companies. Coca Cola will also acquire or be licensed rights to another 19 non-alcoholic drinks owned by SABMiller in Africa and Latin America for around USD 260 million.

SABMiller and its local partner will control the operations and bottling of Coca Cola in the Ethiopian market as a majority shareholder.

Currently, there are more than 30 Coca Cola bottlers in Africa alone and there has already been a wave of consolidation among bottling companies in other countries such as Spain and Japan. Coca Cola Sabco is the second biggest bottler of the product in South Africa and also has operations in other African countries such as Ethiopia and Kenya.

On Thursday, SABMiller PLC and Coca Cola Co. have announced that they will combine soft drinks bottling operations in southern and eastern Africa including in Ethiopia, in a deal that reinforces the UK-based brewer’s growing interest in non-alcoholic beverages.

According to information obtained from SAB and Coke, a new company, Coca Cola Beverages Africa, will serve 12 countries and supply 40 percent of all Coca Cola volumes in Africa.

The two companies also said that SAB and Coke will hold 57 percent and 11.3 percent of the new business respectively while Gutsche Family Investments will own the remaining 31.7 percent.

Ambo Mineral Water has been bottled and marketed since 1930 and is considered the market leader in Ethiopia. The source of Ambo Mineral Water is a thermo-mineral spring, which is rich in natural calcium, magnesium, potassium, bicarbonates and carbon dioxide.

The water originates in a volcanic fissure which then percolates through mountainous terrain, eventually being tapped at the springs in Ambo Senkele, 130 km from Addis Ababa.

It is popularly consumed during and after meals as a digestive, also popularly consumed as a thirst quenching ‘soft drink’ or as a discerning mixer, specifically with whisky and other spirits.

Recently, its product and pack range has been extended to include convenience packaging in plastic bottles, as well as new products, Ambo Lite (lower carbonation and mineralization) and ‘Ambo flavored water’ (Orange, Apple, Pineapple, Lemon-lime).etc.

Coca-Cola was first bottled in Addis Ababa in 1959 by the Ethiopian Bottling Share Company, which later opened a second branch in Dire Dawa in 1965. The two plants were nationalized in 1975 and ran as public companies until 1996 when they were bought by local entrepreneurs. Just prior to this, in 1995, Coca Cola Sabco bought shares in the business and, in 1999, signed a joint venture agreement with the plants. In 2001, Coca Cola Sabco increased its shares to 61 percent and the company changed its name to the East African Bottling Share Company (EABSC). Currently, it produces and bottles a range of beverages including Fanta group, Coca Cola, Sprite, Schweppes, Coke Light and Dasani Bottled Water.

[TheReporterEthiopia]

The recently-restructured Ethiopian Investment Commission (EIC) is anticipated to oversee two essential government activities, industry zone management and export promotion, which are considered to be critical for the transformation of the country to industrialization.

According The Reporter’s sources, the commission is set to bring under its wings the industrial zones development corporation of the Ministry of Industry and Export Promotion Directorate General which was under the Ministry of Trade. Sources also said that these two government offices have been prioritized by the government to scale-up Foreign Direct Investment (FDI) activities and the export earnings of the country. Most of the FDIs coming to Ethiopia are preferred to be export-oriented. Hence, the Office of the Prime Minister is considering the commission to be best suited to manage these two governmental agencies, sources said.

Getahun Negash, public relations officer of the EIC, confirmed to the The Reporter that there are certain moves to muscle up EIC, but said that there are no official assignments given to the commission so far. Attempts made by The Reporter to get a response from the Office of the Prime Minister to further explain and comment as to why such the restructuring was required was unsuccessful.

The House of Peoples’ Representatives has amended the proclamation which constituted the EIC a few months back. The amended proclamation (Proclamation No. 849/2014) stated that Industrial Zone Development Corporation, a body that is assigned to oversee the development of industrial parks in Ethiopia, will be under the investment board, which is also a supervisory body to EIC and is chaired by Prime Minister Hailemariam Dessalegn. However, the recent move, according to sources, is intended to give more functioning power to EIC.

Similarly, the Ministry of Trade, which three years ago was part and parcel of the Ministry of Industry, was heading the export promotion directorate general. Sisay Gemechu, state minister of Industry was appointed in 2013 to head the industrial zones development.

The definition of the industry zone further elaborated to include the development of urban centers, special economic zones, industrial parks, technology parks, export processing zones, free trade zones and the likes which are to be designated by the investment board. The previous proclamation was contained to define industrial development zone as it is “an area with distinct boundary designed by the appropriate organ to develop identical, similar and interrelated industries together or to develop multi-faceted industries based on a plan fulfilling infrastructures such as road, electric power, and water and having incentive schemes with purposes containing industrial development, mitigating the impacts of environmental pollution as administering urban areas with plan and system”, it stated. Besides the industrial development zones are to be developed either by the government, by the joint venture with the private sector or by the private sector alone.

The export promotion directorate general on the other hand, led by Assefa Mulugeta, has also been restructured recently to oversee both agricultural and manufactured commodities of the country and to seek ways which would promote the exports of the country.

The recent commitment of USD 250 by World Bank to finance the state-owned two-phased Bole Lemi Industrial zone has encouraged 22 factory units to come to Ethiopia. Among the stationed factories, the Taiwanese, Hong Kongese and South Koreans are some worth mentioning.

[TheReporterEthiopia]

Powered primarily by the sun, AORA’s Tulip energy system works 24/7 – even at night and when it’s cloudy

Solar energy is an ideal solution for the power needs of the developing world – except for one problem: It stops working when the sun goes down, at precisely the time power is needed to turn the lights on. The solution, according to Zev Rosenzweig, CEO of Israeli energy technology company AORA, is a hybrid system – one that utilizes solar to the fullest, and supplements it with a “backup” system to keep the power flowing when the sun is not high in the sky, using scant resources, with an operating cost of next to nothing.

It’s perfect for developing countries, said Rosenzweig – and after six years of research and pilot projects, and an investment of $40 million, AORA is ready for prime time, he said.

The company announced Tuesday that it had signed a deal to build one of its Tulip solar-hybrid power plants in Ethiopia. “We are transforming our Green Economy Strategy into action and are pleased to partner with AORA to help achieve our vision,” said Alemayehu Tegenu, Minister of Water, Irrigation and Energy for Ethiopia. “AORA’s unique solar-hybrid technology is impressive and well-suited to provide both energy and heat to support local economic development in off-grid rural locations in Ethiopia.”

“Off-grid rural locations” are exactly the places Rosenzweig wants to see more Tulips installed. “Our hybrid system uses both solar power and biogas to operate a turbine, with the hot air moving the turbine to generate electricity.”

Enhancing the sunlight are a series of mirrors to heat compressed air to over 1800 degrees Fahrenheit and drive a turbine. When the sun goes down, the system moves seamlessly from solar to biogas in order to power the turbines, with the biogas derived from animal waste, biodiesel, natural gas – just about any material that can be burned for fuel.

For villages in places like Ethiopia, the best part of the system, said Rosenzweig, is that it doesn’t even need water to operate. In essence, Tulips are like perpetual energy machines; when the sun is out, solar power is converted into power to run the turbines and create electricity; and when the sun is in, the system turns to biogas, created by an AORA conversion system.

There are Tulips in Israel, Spain, and the US, but those are test programs; Ethiopia will be the first country to deploy the system commercially. Construction of the first plant is expected to begin by mid-2015. Following a trial, the Ethiopian ministry intends to expand deployment of AORA installations for rural economic development to off-grid communities in selected areas of the country.

Each Tulip station is small and modular, producing 100kW of electricity in addition to 170kW of heat, while occupying less than 3,500 square meters (0.86 acres), requiring much less land per kWh to generate usable power and heat than other systems, like photovoltaic, said Rosenzweig. “Each Tulip can generate enough electricity for 30-40 homes in Western countries, and should be enough to cover all the power needs of villages in the developing world,” with each system costing between $500,000 and $750,000, depending on size.

The Tulip technology was developed at the Weizmann Institute, and AORA has the worldwide rights to commercialize and distribute it, with Rosenzweig one of the leaders of the research. “I got the idea for this in India, where they lose a lot of their harvest because they have no place to store fruits and vegetables in rural areas,” he said.

Existing solar systems in rural areas could only operate part of the time – not at night, and not during the rainy season – so they weren’t usable for refrigeration, without which produce would start to rot within a few days, long before most of it could get to market. “Electricity can change the lives of people in the developing world, and the Tulip system can provide an effective solution to any community anywhere,” said Rosenzweig.

“We are pleased to partner with the ministry and look forward to bringing our technology to Ethiopia to provide the population with affordable access to power,” added Rosenzweig. “Such access will have significant social and economic impact on off-grid communities, helping to provide power to schools and medical facilities, refrigeration for food processing and post-harvest storage, groundwater pumping and much more.”

[TheTimesofIsrael]

Saudi Star Agricultural Development Plc, an Ethiopian company owned by billionaire Mohamed al-Amoudi, plans to invest $100 million in a rice farm in western Ethiopia next year to kick-start the stalled project.

The company leased 10,000 hectares (24,711 acres) in the Abobo district in the Gambella region, where it’s based, in 2008 and bought the 4,000-hectare Abobo Agricultural Development Enterprise from the government 18 months ago for 80 million birr ($4 million). After delays caused by unsuitable irrigation design and contractor performance issues, Saudi Star wants to accelerate work in 2015 after a change of management, a redesign of the farm and a successful trial of rain-fed rice on 2,000 hectares at the formerly government-owned operation, Chief Executive Officer Jemal Ahmed said by phone.

“We have a very aggressive plan,” he said on Nov. 26 from Jimma, about 260 kilometers (162 miles) southwest of the Ethiopian capital, Addis Ababa. “If we’re able to do that we’ll be able to produce more.”

The project is part of a government plan formalized in 2010 to establish commercial farms on 3.3 million hectares of fertile land in sparsely populated parts of the country such as Gambella. Ethiopia expected to earn $6.6 billion a year from agriculture exports in 2015, according to a five-year economic plan published in 2010, though total goods exports last fiscal year brought in $3.3 billion.

Prime Minister Hailemariam Desalegn said in October 2013 that progress on the program had been “very slow.”

Billionaire Investor

Ethiopia-born al-Amoudi is worth $8.1 billion, according to the Bloomberg Billionaires Index, which ranks him as the world’s 157th richest person. His company built underground oil-storage facilities in Saudi Arabia and he owns Preem AB, Sweden’s largest crude oil refiner. Al-Amoudi is increasingly investing in formerly government-owned farms in Ethiopia, a nation where companies under his Midroc group operate the only commercial gold mine and built the largest cement plant in 2011.

Saudi Star’s $100 million investment will focus primarily on building irrigation infrastructure, including finishing the main canal from the more than 25-year-old Alwero Dam built by Soviet engineers, as well as a rice de-husking plant, storage silos and land clearing, according to Jemal.

An initial plan to have the farm divided into 3.75-hectare plots to produce rice from submerged paddy fields has been shelved as unworkable, he said. Only 350 hectares has been developed since 2008 on the land leased for 300,000 Ethiopian birr ($14,908) a year.

Economically Unviable

“It was not environmentally and economically viable, that’s why they were struggling, so we stopped that,” Jemal said. “We want to make it large-scale flood irrigation, not small ponds.”

Saudi Star’s revenue is forecast to be about $60 million in 2016 once the irrigation system is developed, with 60 percent of the aromatic rice exported mainly to Arab nations on the Persian Gulf, Jemal said.

Hampering current harvesting are late rains and, for two days in October, unrest in Abobo town after violence between ethnic Anuak, who are indigenous to Gambella, and other Ethiopians. The company has Ethiopian soldiers guarding its compound and about 100 stationed nearby. Two Pakistanis and three Ethiopians employed by Ghulam Rasool & Co., a closely held Pakistani engineering company building the irrigation canal, died in April 2012 after an attack by a group of gunmen.

Security Addressed

The government has “taken care” of security issues, farm manager Bedilu Abera said while seated in one of the air-conditioned trailers that are now Saudi Star’s headquarters after they were moved from Addis Ababa.

Anywaa Survival Organization, a Reading, U.K.-based rights group, said in an Oct. 14 statement that land leases in Gambella have fueled conflict.

“The rush for land, water and other essential natural resources has become a curse for indigenous and minority peoples who barely have legal protection and redress,” it said.

Saudi Star says only two Anuak villages of huts with sweeping grass roofs lie just outside the project’s boundaries in deep forest. Some local residents complain they’ve not benefited from the investment and that they suffer collective punishment by the military.

“They used to kill people from the village,” Akea Ojullo, a 27-year-old teacher, said in a Nov. 23 interview in Perbong village. “It got worse after the attack on Saudi Star.”

‘Wrong Project’

The company plans to work with local residents by investing in workers, distributing rice and plowing land for them. “We know we’re creating job opportunities, transforming skills, training local indigenous Anuak, but there’s a campaign to have people perceive it as a wrong project,” Jemal said.

The farm still has the backing of officials, even though progress has been slow, Jemal said.

“The government wants the project to be a success and see more Gambella people be able to work and produce more,” he said. “That’s the big hope.”

Large, complex projects like Saudi Star’s need many years to produce results, Gambella President Gatluak Tut Khot said in an interview in Gambella town.

“We are not disappointed about the operation because we know that agricultural operations are very difficult,” he said. “We are giving them time in order to correct every mistake, overcome every obstacle, every challenge they face.”

Ethiopia is Africa’s fastest growing economy, averaging 11 percent growth during the past decade, according to the International Monetary Fund.

[Bloomberg]

The Ethio-South Africa Pre-investment Trade Mission meeting was opened on December 2 at the Ellile Hotel, Addis Ababa in the presence of higher government officials, South African investors, representatives of Ethiopian companies, and other private and government stakeholders.

A delegation of more than 12 South African Company representatives, including Quantum Food, Astra LTD, Agri Mega Group, KPMG, Standard Bank, CNBC Africa, African Business, are attending the Forum organized by the Ministry of Industry in collaboration with Ministry of Foreign Affairs to discuss on the investment and trade opportunities available in Ethiopia.

State Minister of Foreign Affairs, Dewano Kedir, opening the conference, noted that the relationship between Ethiopia and South Africa was longstanding and deep rooted in all economic, cultural, political and historic areas. He said the joint forum would now take the relationship further and “deepen Ethio-South Africa’s existing relations and raise them to the higher levels through fostering strategic economic and solid business partnerships.”

Companies present have interest in various sectors including agriculture, with specific reference to dairy, beef and poultry production, infrastructure development and particularly the power, mining and oil sectors, as well as animal feedstuffs, higher education, financial services for construction, and food manufacturing and export services. Mr. Roedolf Steenkamp, Managing Director for Africa, Astra Operations Limited, a leading South African integrated poultry producer, noted that his company which produced various animal feed products, was hopeful of becoming engaged in the emerging investments opportunities in Ethiopia.

The Forum will last until Saturday (December 6).

[allAfrica]

Expectations have heightened in Rwanda and beyond as plans have been unveiled by the Eastern and Southern African Trade and Development Bank (commonly known as PTA Bank) and GML Capital to establish an African-focused trade finance investment fund. Importers and Exporters in the region believe this development will usher in more financing for their businesses.

“It will be an open-ended fund and will seek to provide secure and stable investment returns, uncorrelated with mainstream asset classes, while also pursuing social and development goals in Africa in reducing poverty and transferring financial expertise to entrepreneurs on the continent,” the firms indicated in a statement.

The new investment fund, which is expected to be open for subscriptions as from next year, will greatly support importers and exporters starting from the 18 African states where the PTA Bank currently operates.

The Bank’s customer base spans the Common Market for Eastern and Southern Africa (COMESA) trade bloc and includes Burundi, Comoros, Djibouti, the Republic of Congo, Egypt, Eritrea, Ethiopia, Kenya, Malawi, Mauritius, Rwanda, Seychelles, Somalia, Sudan, Tanzania, Uganda, Zambia and Zimbabwe.

The air around this development is increasingly positive as both firms have extensive knowledge of the region and can now offer tailored innovative financing solutions to boost regional trading and development.

“This fund will make a significant contribution towards addressing the trade financing deficit in Eastern and Southern Africa. It will also help leverage regional, international, private and public sources of capital and facilitate regional trade and economic integration that is in line with the mandate of PTA Bank,” said PTA Bank President, Admassu Tadesse.

Mohammed Muzimpaka, Chairman of the Chamber of Commerce at the Private Sector Federation, believes the fund can enhance competitiveness in the investment financing segment, and boost overall socio-economic and environmental development.

“It will be an alternative source of funding for investors seeking long-term and affordable credit. In fact it’s timely, and will enable the private sector efforts to deliver the country’s economic development objectives,” he said.

The impact of imports and exports on a country’s balance of payments and overall economy are significant. Positive net exports contribute to economic growth, therefore, countries are to aim for more exports as this would mean more output from, say, factories, more people employed to keep up with increasing output, more inflows into the economy which usually translates into consumer spending and further economic growth.

The trade fund is, therefore, a welcome development and one that should be replicated by other African regions as a sure means of stimulating further growth.

[VenturesAfrica]

Moody’s has assigned a provisional (P)B1 rating to Ethiopia’s upcoming dollar-denominated bond offering, while Standard and Poor’s (S&P) has assigned it a ‘B’ rating.

The bond, Ethiopia’s first issuance in international markets, will fund Government capital expenditures, including development of the sugar and energy industries and general budgetary expenses, S&P said.

Moody’s rating of the bond is aligned with the country’s long-term issuer rating of B1, assigned for Ethiopia’s favorable long-term growth prospects and the near-term fiscal outlook.

“While Ethiopia’s per capita GDP income is rising quickly and growth prospects remain favorable thanks to government investments toward the development of infrastructure, its economy remains small, with low per capita income and substantial reliance on the volatile agricultural sector. The latter represents almost half of gross value added and is susceptible to poor harvest outcomes due to extended periods of drought,” Moody’s said.

Assets in Ethiopia are highly concentrated in state-owned banks, with three public banks accounting for 73 per cent of total assets—the Commercial Bank of Ethiopia dominated the sector in 2013 with 63 per cent of total assets, Moody’s reports. However the banks are well-capitalized and the Government has low liquidity risk at present.

“The weakness of Ethiopia’s institutions remains a challenge, with a mixed monetary policy track-record as the country struggles to contain volatile and elevated inflation rates, averaging 16.7% per annum over the past decade. On a positive note, the government’s five-year plans show policy continuity and the administration shows a track-record of fulfilling or even outperforming the plans’ targets,” Moody’s added.

Another key risk to Ethiopia’s economic forecasts remains its geopolitical position, as it is landlocked and surrounded by more volatile countries that could threaten its stability.

Both ratings services said that they will review the rating following the bond’s issuance.

[CPIFinancial]

From thousands of kilometers of railways and highways to mega dams to tens of thousands of partially government-sponsored houses to cobblestone roads, Ethiopia is a nation under-construction.

About a fifth of the 10.3 per cent growth registered in the 2013/14 budget year was attributable to construction activity, according to the World Bank. Over the same period, the total investment rate rose from 32.1 per cent of GDP to 40.3 per cent.

Some $1.5 billion from the $8.5 billion budget of the country this year is earmarked for construction of roads. In addition to the government, there is huge investment by the private sector in real estate.

For the 13th most populous country in the world, with 90 million plus people, of which the majority are young, the huge investments by the government in infrastructure and construction by private sector are the major source of jobs.

Today tens of millions of Ethiopians are working on various construction sites.

“Ethiopia is indeed a nation ‘under construction,’ the construction boom is increasingly supporting economic growth,” said Lars Christian Moller, lead economist and program leader at the World Bank Ethiopia office, which is currently involved in 25 projects in Ethiopia with $6 billion in commitments, making it the largest country program in Africa.

Railway

Out of the total 4,744km of railway line the country planned to construct, about 2,000km was built during the first Growth and Transformation Plan period 2010/11-2014/15.

Currently, 50 per cent of the 800km Addis Ababa-Djibouti railway is complete while the 700km Mekele-Awash line is set to be launched this year.

While 70 per cent of the cost of the $3 billion Addis Ababa-Djibouti railway is secured from the Chinese government, the remaining is financed by the government. The construction and consulting is being undertaken by Chinese companies CREC and CCECC.

“A $1.7-billion soft loan has been secured from Swiss Bank by Turkish company Yapi Merkez for the construction of the 389km Awash-Weldiya railway,” according to Dereje Tefera, head of communications at the Ethiopian Railway Corporations.

“The electric railway will save Ethiopia hard currency that would have been spent on fuel imports,” Mr Dereje said, adding that 254 professionals including the rail master have already trained in China.

About 80 per cent of the 34km Addis Ababa light railway is completed. A $470 million loan was secured from China’s Eximbank for the project. CREC of China is carrying out the construction while SweRoad of Sweden handled the consulting.

One of the major construction areas is the government housing project started 10 years ago. Annually, an average 25,000 houses are built and distributed to the public. In Addis Ababa, over one million people have registered for these low-cost houses.

Big government

In 2011, Ethiopia had the third highest public investment rate in the world, but the sixth lowest private investment rate, according to the recently released “Second Economic Update Report Laying the Foundations of Middle Income Status.”

“We believe in big government ownership of the country should not be left to the market because there are market failures,” said Foreign Minister Dr Tedros Adhanom at a recent development partners’ meeting in Addis Ababa.

“The government should not be like a night watchman… Our investment not only enhances development and makes the economy competent but also improves the social services,” Dr Tedros said.

This is a view shared by the World Bank’s Mr Moller.

“Large-scale public investments in the provision of basic services such as education and health have contributed to poverty reduction both by contributing to growth and by preferentially increasing the welfare of the poor,” said Mr Moller.

“Tremendous investment in infrastructure and market development, especially in road networks, has reduced remoteness, integrated markets and reduced marketing margins,” he added.

Sources of Money

The government uses different strategies to raise money for its mega projects. Key among these is foreign borrowing.

Under this scheme, any company from across the world, with experience in the specific project implementation, can take the contract of a mega project if it can bring in the financing fully or partially as a soft loan from its government bank.

The Chinese government takes the lead in such project financing in Ethiopia. From the over $500 million 85km expressway between Addis Ababa and Adama city, which was inaugurated this year, to the Addis Ababa-Djibouti and Addis city railways and several power projects, at least 70 per cent of the cost is being financed by Chinese government banks such as China Eximbank.

In addition, the government has been mobilizing domestic savings to finance its housing program and the $4.2 billion Great Ethiopian Renaissance Dam.

To support these mega projects and provide the necessary lending to the private sector to invest in the manufacturing sector through the state banks, the government has also ordered private banks to set aside 27 per cent of their lending portfolio to purchase government bonds.

The cost

While concessional finance from multilaterals such as the World Bank is currently offered at zero per cent interest, the average interest rate of new non-concessional borrowing increased from 2.7 per cent in 2012/13 to 3.4 per cent in 2013/14.

A prospective sovereign bond issuance would be much more costly (10-year sub-Saharan African sovereign bonds are currently trading at 6-6.5 per cent).

“As global interest rates rise in the coming years, so will the cost of non-concessional borrowing.  The higher cost of borrowing is another reason to be cautious,” Mr Moller said.

As most of the inputs for construction except cement and a few other items are being imported, the construction boom is also contributing to the widening of Ethiopia’s trade deficit, which reached $10 billion this year.

“As a big government following developmental state path, we intervene aggressively in development of infrastructure, road, railway, power generations and sugar. We waited for decades for the private sector to invest in these sectors but they didn’t come.”

Some observers worry about the diminishing role of the private sector as a result of huge investment by the government. The government is engaged in various businesses ranging from production of consumer goods such as cigarettes, sugar and beer production to assembling of motor vehicles.

Government-led growth

“High public investment can be justified from a perspective of Ethiopia having a substantial infrastructure deficit to cover. The strategy aims to crowd-in the private sector in the medium to long term, but may inadvertently crowd it out in the short term as it absorbs scarce credit and foreign exchange, which inhibits private sector growth,” said Mr. Moller.

He asserted that the only sustainable long term engine of growth is the private sector while government support is key in the form of adequate physical infrastructure and creating a conducive business environment for the private sector.

The government’s growth strategy is currently centered on providing the necessary infrastructure. However, the overall economy is facing a scarcity of capital and foreign exchange, especially in the context of a negative real interest rate and an overvalued real exchange rate.

“As a result,” said Mr. Moller, “The ongoing public investment boom is absorbing scarce credit and foreign exchange, which could otherwise have been available to the rest of the economy. The policy challenge is to ensure a soft landing rather than a crash.

“The strategy, therefore, has some short-term negative implications for private sector development. However, if successful, it should be able to crowd in private sector activity in the future as infrastructure investments are completed and start paying off,” Moller said.

[TheEastAfrican]