2023
Path to Recovery
The dawn of 2023 in Ethiopia was marked by a wind of revival, whispering promises of change. Tigray Regional State, which had endured a year-long siege, slowly embraced the return as telephone networks were live and Ethiopian Airlines resumed commercial flights. The buzz of anticipation hung in the air, transforming into a momentous surge in travellers that forced the Airline to add a second flight, turning a page on a chapter marked by adversity.
Yet, as the wheels of progress turned, a formidable task of demobilising and reintegrating a quarter of a million former combatants carried a hefty price tag of nearly 29.7 billion Br. The National Rehabilitation Commission (NRC) took the reins, with the federal government expected to cover a quarter of the budget. Bilateral partners, the UN, the EU, and multilateral financial institutions joined hands, transforming the narrative from conflict to reconstruction.
The Rise and Fall of Forward Trading
As business gained momentum in the north, the Ethiopian Ministry of Trade & Regional Integration made a game-changing move– the implementation of a forward trading scheme. Crafted as a weapon against contraband trade and market hoarding fueled by the high demand for sesame and red kidney beans during the conflict, it initially gained traction as an alternative to the traditional spot trading system. However, its unexpected suspension raised eyebrows, leaving stakeholders questioning the system’s integrity and the potential risk of monopolistic practices after transacting over 400tns of commodities worth 285 million Br in just two months.
Export Woes
Economic challenges cast their shadows over Ethiopia, with export earnings facing a notable 11.9pc drop, totalling 3.2 billion dollars during the year. The decline was led by a sharp decrease in the value of Ethiopia’s main coffee export, Arabica, plummeting by 35pc, impacting revenue streams. The once-booming coffee industry, a pride of the nation, now stood at a crossroads.
Leadership Shifts and Financial Challenges
Leadership changes graced two of the highest federal offices during the year. Tewodros Mihret was appointed as the new Chief Justice of the Federal Supreme Court and Mamo Mihretu took the reins as the Governor of the National Bank of Ethiopia (NBE). Mamo, a former World Bank employee, faced a daunting task amidst a worsening liquidity crunch in commercial banks. The Ethiopian Bankers’ Association initiated a study into the root causes, examining disbursed and non-performing loans from each commercial bank. The findings were expected to identify structural weaknesses and provide input for regulators.
Governor Mamo, amidst economic challenges, outlined plans to manage credit growth more cautiously, limiting loans to the federal government and redirecting the economy towards price stability. The move signalled a shift towards an interest-based monetary policy framework. Adjustments to the surrender requirement for exporters, reducing it to 50pc of their foreign exchange earnings, aimed to provide relief to the sector grappling with a forex crunch.
In a surprising move, the National Bank of Ethiopia (NBE) imposed a 14pc cap on loan growth. The decision elicited an outcry from executives of newly established banks, with the presidents of 10 banks expressing dissatisfaction in a letter to the central bank Governor. They argued that the loan growth cap would hinder their ability to make profits and grow their banks, emphasising the delicate balance between macroeconomic stability and supporting the growth of new financial institutions.
The Rise of Capital Market
During the year, Ethiopia accelerated its efforts toward realising a functional capital market. The Ethiopian Capital Market Authority took centre stage, introducing a series of directives related to licensing capital market service providers, securities exchanges, and trading platforms, along with self-regulatory organisations. While business leaders welcomed the move, concerns surfaced about the readiness of commercial banks to engage in capital markets. Calls for careful selection of foreign players entering the market echoed, aiming to prevent capital flight. Banks eyeing investment were mandated to create independent subsidiaries with a capital of 100 million Br, heralding a new chapter in the financial landscape.
Talk of the Town
Amid the economic symphony, a discordant note reverberated in the procurement of 200 buses for public transportation in Addis Abeba. Controversial businessman Yadeta Juneydi Bekri, under Brighton Trading Plc, spearheaded the acquisition at a cost close to 19 million Br for each bus. The procurement process faced challenges, including foreign currency shortages, leading to a prolonged bidding process that invited public scrutiny. Concerns over the transparency and efficiency of the process lingered, casting a shadow over the transportation initiative.
Business Chronicle
Another chapter unfolded in the Access Real Estate saga, as shareholders reinstated Ermias Amelga, the controversial businessman and founding shareholder, to the company’s board after a decade. The company, once lauded as a game-changer in the real estate industry, faced challenges in delivering housing units to over 2,000 buyers. Ermias’ return after allegations died down posed a unique challenge to the newly elected board, tasked with regaining shareholders’ confidence, negotiating the unfreezing of assets, restoring relationships with contractors, and securing financial resources.
Clash of Big Shots
In a clash of business interests and cultural preservation, Tilqsew Gedamu, renowned for developing the Grand Hotel in Bahir Dar, sought to transform a cherished cultural establishment in the Casanchis neighbourhood into a potential five-star luxury property. The contender Melaku Belay, the founder and owner of Fendika Cultural Centre, vehemently opposed the planned demolition, creating a narrative of tradition versus progress. The cultural hub, frequented by more than 20,000 visitors annually, found itself at the intersection of history and development.
Property Tax Revolution
The year took an unexpected turn in the legislative chambers when a resolution granting regional states the right to impose taxes on property ownership was passed. Ratified with four votes against and five abstentions, parliamentarians engaged in heated debates about the potential public burden, double taxation concerns during inflationary times, and the relevance of property tax. Supporters argued it would modernise the revenue collection system, promote urbanisation, and fund basic services in the regional states, paving the way for a new era in fiscal policy.
Budget Balancing Act
In a conspicuous departure from historical tendencies that focused on infrastructure, parliament approved a federal budget of 801 billion Br. This signalled a potential pivot in policy direction, allocating 203 billion Br for capital expenditure. However, with an inflation rate soaring to 33pc, this implied a de facto significant drop in infrastructural expenditure, setting the stage for a delicate balancing act between economic stability and development.
Struggle for Fiscal Clarity
As the new budget discussions unfolded, trepidations over an economy haunted by soaring inflation, regional instability, and concerns over pending civil service restructuring surfaced in Parliament. Members sought transparency regarding the financing of the Prime Minister’s ambitious resort, park, and palace projects, setting the stage for a turbulent session where calls for Prime Minister Abiy Ahmed’s resignation echoed once again, creating a dramatic climax to the budget debates.
Cyber Threats and Navigating Reality
Beyond economic realms, cybersecurity threats loomed globally, impacting organisations and institutions. The African Union headquarters experienced a cyberattack, leading to the temporary closure of its network and the suspension of several functions. Prime Minister Abiy Ahmed, addressing the annual AU summit, emphasised Ethiopia’s ambition to become a wheat exporter, expressing hope that the continent might become a breadbasket for the world. However, an in-depth exploration revealed a complex web of challenges in the dynamics of wheat exports, with millers claiming a scarcity of grain while local demand soared amid rising inflation.
Fertiliser Shortages and Consumer Woes
The agricultural landscape was marred by a severe fertiliser shortage, posing a threat to farmers and food security. Cooperative unions, traditionally reliable sources of fertilisers, struggled to meet demand due to supply shortages attributed to a surge in seasonal demand, logistical challenges, and infrastructural hurdles. Authorities explored avenues, including allowing the private sector to import, in a bid to address the crisis looming over the country.
The Most Expensive Regional State
The consumer price index analysis painted a bleak picture, portraying Benishangul-Gumuz Regional State as the most expensive state to live in. Residents faced higher prices for essential goods, attributed to logistical adversities, security issues, and challenges in importing goods into the region.
Quenching Thirst
In the capital, limited water supply compounded urbanites’ frustrations where rationing of running water supply remained a constant woe. The 80-year-old Gefersa Dam continued to provide the majority of the capital’s water, highlighting the infrastructural challenges faced by growing cities.
Public Service Overhaul
In a bid to overhaul the public service sector and enhance service delivery, significant plans were proposed, pending approval. Joint employment modalities allowing civil servants to work at two public offices simultaneously were introduced by officials at the Civil Service Commission. Simultaneously, the Public Services & Human Resource Development Bureau considered a proposal to double the daily service hours for civil servants working for the Addis Abeba City Administration. The proposed changes offered a choice between a three-day work week with 14-hour shifts or a daily work with fewer hours, reflecting a potential shift in the traditional work structure.
Labour Discontent
As the cost of living rose unchecked, labourers expressed dismay over stagnant wages. Multiple attempts to engage with the Ministry of Labour & Skills and the Prime Minister’s Office went unanswered, leading to planning a rally on Labour Day. Their demands included better wages, improved safety measures, and greater recognition of workers’ concerns in the face of the rising cost of living.
The union also sought the reform of the tripartite Labour Advisory Board, comprised of representatives from labour, employers, and authorities. The absence of the board had led to a disconnect between the workforce and the government, leaving legislative matters unattended, including the passage of the minimum wage law. While the law remained in limbo, officials from the Ministry claimed to be transforming the ministerial organ, severing contacts with the confederations.
Educational Shock
The year brought an unfortunate turn of events on the education front. Officials worked tirelessly to overhaul the education system after a minuscule number of 12th-grade students passed the average grade to gain higher education admission. Stringent measures to curb exam leaks and cheating revealed an unprecedented outcome, with only 3.3pc of students passing the school leaving exams. The fate of over half a million students hung in the balance, with some facing “remedial exams” and others staring at the grim reality of joining the vast pool of the unemployed.
Meanwhile, a wave of “medical brain drain” had put a significant toll on its healthcare system. Ethiopia ranked among the top five African countries for doctor emigration. Around 32pc of employed doctors surveyed last year planned to leave their medical careers for different businesses, frustrated by an average annual salary of 4,800 dollars plan.
Debt Default
Ethiopia found itself compounded by severe drought in the aftermath of the civil war. Inflation, foreign exchange shortages, and stress on monetary and fiscal health posed formidable hurdles, demanding creative solutions and resilient leadership.
The rising external debt and debt service payments prompted officials to seek debt restructuring, particularly with major creditors like China. Amidst these economic struggles, Prime Minister Abiy Ahmed engaged in talks with the World Bank leader during the “New Global Financing Pact” discussions. The conversation revolved around climate financing shortfalls, heavy debt burdens, and political instability.
Despite multiple delegations’ efforts, Ethiopia defaulted on 33 million dollars by the end of the year, making it the third country in Africa to fail in its commitment to pay back its debt. As the year comes to an end, Ethiopia finds itself at a crossroads, navigating through economic pressures, financial reforms and leadership challenges.
