For the 2024/25 budget year, the Addis Ababa City Administration has proposed a budget of about a quarter trillion birr, an increase of over 90 billion birr from the preceding year.
The majority of the 230.4 billion birr draft budget, which was presented for public consultation before being sent to the city council for approval, is allocated to capital projects that are carried out by the municipal administration led by Mayor Adanech Abiebie.
The proposed budget amount is a 42 percent increase above the first approved budget of 140.2 billion birr for the 2023/24 budget year.
Recall that the city government increased its budget to 162 billion birr for the budget year 2023/24.
Recurrent funding for the 2024/25 budget year is 83.9 billion birr, or 36.4 percent of the total proposed amount, of which 9.4 billion birr is provisional.
However, the capital budget, which accounts for 146.4 billion birr, represents 63.5 percent of the total.
Based on the information that Capital was able to gather, the municipal budget will prioritize mega projects that are managed by the city administration, with job creation, social sector development, and city reform initiatives listed in that order.
The majority of the budget, according to the proposal, would go toward funding obtained from tax collection.
According to the city Revenue Bureau, revenue collection is increasing annually, but experts claim that there has been an increase in illicit activities, namely non-receipt-based transactions, in the city.
The bureau reports that over the previous five years, the average yearly gain in tax revenue has been 23 percent. The agency estimated that it will collect 151 billion birr in the budget year that concluded on July 7.
The city administration has been granted 5.2 billion birr for the budgetary year by the central government.
The budget for the current budget year, authorized by the central government, is 970 billion birr.
For the first time in over a decade, the state-owned telecom company Ethio Telecom is in the process of applying for a loan from an American financier. The telecom behemoth has surpassed its own forecasts to wrap up another stellar year in the just-concluded financial year.
The 130-year-old business revealed that its unaudited net profit increased to 21.8 billion birr, or 108.7% of the target.
In addition, the net profit increased by over 21%, or nearly 3.8 billion birr, compared to the previous year.
Frehiwot Tamru, the CEO of Ethio Telecom, declared, “In the last six years, we have quadrupled our net profit.”
At the press conference on Thursday, July 10, Frehiwot stated, “The 2023/24 budget year marks the completion of the second year of our three-year LEAD Growth strategy. And as a result, our subscriber base has grown by 8.9% from the same period last year, reaching 78.3 million customers, achieving 100.4% of our target.”
The company’s revenue in the reported period rose by 21.7% compared to the previous year, amounting to 93.7 billion birr, a rise of 16.7 billion birr over the previous year and 103.6% of our objective.
The unaudited financial report, according to the CEO, shows an EBITDA of 42.44 billion birr, or 47%, hitting 102.4% of the goal.
The state-owned telecom behemoth, which also generates foreign exchange, has secured almost USD 198 million, climbing by about 21 percent and reaching 117.5% of the projection set for the year.
Comparably, the company, one of the two state firms that do not require a government guarantee to access overseas funds, paid out USD 58.45 million, or 3.4 billion birr, through vendor financing for telecom development projects that had previously been held.
One of the CEOs of state-run businesses with a high work rate, Frehiwot, asserts that her company has completed external audits for the preceding six years.
“We are currently in the process of obtaining funds from an American financial firm to undertake expansion in the current budget year,” she states, “because our audit report has been sound and would allow borrowing external loans with very minimal interest rates.”
The CEO of Ethio Telecom stated that the new funds are awaiting clearance from the appropriate government authority.
This would be the company’s first foreign loan since 2013, the year it inked a USD 1.6 billion contract to extend mobile services nationwide with two of China’s largest telecom companies, Huawei and ZTE Corporation.
For the project, the funds came from a Chinese financier similar to the one that concluded in the mid-2000s by ZTE.
Telebirr
Launched three years ago, Telebirr, which is one of Ethio Telecom’s growing wings, has also significantly improved in the past year. According to the company, the business segment has seen significant growth in several operational areas.
Ferehiwot reports that 47.5 million Telebirr users have signed up for the service this year, surpassing the goal by 107%.
“According to a National Bank of Ethiopia report from March, this achievement translates to a 45.7% share of the total mobile money service users in Ethiopia,” she continued.
A total of 1.81 trillion birr was transacted in a single year thanks to the digitization of financial transactions through Telebirr, which has also improved financial inclusion and accessibility.
Since its launch in May 2021, a total of 2.55 trillion birr has been conducted overall. Similarly, 915 million transactions have been made, with USD 4.7 million going towards overseas remittances.
The telecom operator said in a statement that fuel payments of a significant 233 billion birr had been processed through the use of Telebirr.
Regarding the service payment system upgrade, Telebirr helps 129 government institutions, excluding fuel payment, integrate their product and service payments.
According to the company statement, 51 billion birr were processed during the current budget year, out of the 63.9 billion birr that had been transacted using Telebirr.
“Notably, 36.8 billion birr were particularly attributed to payments made through the government’s electronic service offering (E-government), and 30.5 billion birr were recorded in the current budget year,” it added.
Telebirr provides microloans, microsavings, and other associated digital financial services in partnership with Dashen Bank and the Commercial Bank of Ethiopia.
“Our firm provided microcredit services worth 9.6 billion birr to 2.9 million clients in the budget year, reaching a total of 12.9 billion birr with 5.3 million customers since August 2022,” the statement read.
The company provided microloans, savings, and overdraft services to its consumers.
Additionally, 2.1 million consumers have saved 13.35 billion birr in the last nearly two years, compared to 1.3 million customers who saved a total of 9.7 billion birr throughout the year.
A total of 436 billion birr was transferred with banks during the budgetary year, bringing the total amount of money moved with banks since 2022 to 765 billion birr.
Currently, 28 banks are connected to Telebirr.
Expansion and Restoration
In terms of boosting the capacity and coverage of the telecom and digital infrastructure, the 4G mobile network was completed at 966 sites, while the 3G network was expanded at 682 locations throughout the year.
The company has announced that the 4G network service has been expanded to 124 more cities and districts, bringing the total number of accessible 4G cities to 424. The 5G network was expanded at 79 mobile stations during the year that concluded on July 7, bringing the total number of 5G stations to 189.
Furthermore, four regional capitals currently have 5G service accessible, and work is in progress to make four additional cities 5G-ready.
A total of 150 new mobile towers have been built and installed in 81 weredas throughout 12 regions and one city administration during the budgetary year.
There are currently 63 mobile towers in development. Furthermore, 132 mobile towers that are currently in use have had 2G and 3G extension work completed on them throughout 7 regions, totaling 104 weredas.
The CEO remembered that, in addition to the effects associated with theft and other causes, instability in different parts of the nation harmed telecom infrastructure and interrupted services.
“Our company implemented a restoration plan due to improvements in peace and security,” Frehiwot stated.
The telecom behemoth was able to repair 16 service centers, restore 179 mobile sites in 61 towns and woredas across 6 regions, and sign up 374 new fixed broadband customers, of which 62 are enterprise clients and 14 are financial institutions. Besides restoring 570 kilometers of fiber optic cable.
She said, “The company is still dedicated to continuing restoration efforts to guarantee that all Ethiopians have access to reliable and affordable telecom services.”
The corporation paid 9.97 billion birr in government dividends and 29.8 billion birr in taxes during the 2023/24 budget year.
Open market operations (OMO), the first modern primary market, took place this week after the new monetary policy framework was announced early on. The central bank has unveiled a number of policy frameworks that it called historic. However, analysts noted that these new initiatives are part of the government’s efforts to modernize the industry in accordance with international standards, to be in line with lenders and other international partners, and to facilitate the World Trade Organization (WTO) accession process.
It was noted that the National Bank of Ethiopia (NBE), the regulatory body for the financial sector, issued an ‘open market operations and standing facilities directive’ in 2021, allowing NBE to trade with banks.
The directive states that banks shall trade marketable security instruments with one another as collateral.
The NBE has also been working to develop modern infrastructure, such as the Central Security Depository (CSD), which allows securities to be electronically registered on a central platform.
In addition to being an electronic platform for traders, CSD will serve as the infrastructure for the soon-to-be secondary market.
According to the statement of the central bank issued on July 11, NBE’s first-ever OMO auction was successfully held. This auction, which was a liquidity absorbing exercise, attracted 16 bidders at the offered National Bank Rate (NBR) of 15 percent and collected cumulative bids of 19.97 billion birr.
According to banking sector guru Eshetu Fantaye, the most recent auction suggests that funds are present in commercial banks’ payment and settlement accounts.
As part of its main objective to ensure low and steady inflation, the NBE has been working towards modernizing Ethiopia’s monetary policy framework over the last year, according to a statement made by Mamo Esmelealem Mihretu, the governor of the organization, on Tuesday, July 9.
He said in line with the NBE Medium-term Strategy Plan, to establish a supportive legal, institutional, and technical basis for meeting the objective, the NBE has taken several preparatory measures and introduced a new monetary policy framework, including introducing an interest-rate-based monetary policy regime.
Under the new policy framework, the NBE will use its policy interest rate to be known as the NBR as the primary means of signaling its policy stance and influencing broader monetary and credit conditions. “The NBR will be raised or lowered depending on prevailing inflationary and monetary conditions and currently stands at 15 percent.”
The governor stated, “The policy rate takes into account current macroeconomic conditions, which are characterized by low base money growth, a marked slowdown of bank credit growth over the past year, and gradually declining (but still elevated) inflation.”The policy rate is slightly lower than commercial bank lending rates, which typically range from 16 to 20 percent for the majority of loan categories. It is similar to the rate at which banks already lend to one another.
Regarding its new monetary policy, the NBE revealed that it will begin holding auctions connected to monetary policy, or OMO, every two weeks.
“The key tool for monetary policy will be the OMO in order to maintain the operating goal of monetary policy, that is, interest rates in the interbank market, close to the NBR,” the regulatory body said.
The governor stated in his statement that “the OMO auctions will be used to withdraw excess liquidity from the banking system and vice versa when excess liquidity in the banking system leads to significant downward deviations in the interbank market rate from the NBR.”
OMO transactions include the buying and selling of repo or reverse repo assets, credit operations using eligible assets as collateral, the purchase or sale of eligible assets outright, the issuing of NBE certificates, and deposit-taking activities.
As part of the new scheme, the NBE is also introducing an ‘Overnight Lending Facility’ and an ‘Overnight Deposit Facility’ for banks that might need to manage their liquidity positions over just a one-day time horizon. “These facilities, known formally as Standing Facilities, will be offered at the NBR rate plus or minus three percent,” the NBE stated.
The NBE has also stated that it is soon introducing an electronic platform that will make it easier for banks to lend to and borrow from each other, thereby facilitating an active and functional ‘interbank money market.’
In the most recent trade, which took place on Thursday, bidders used email to make their offers.
The money market, once fully operationalized via a web-based online platform, will allow liquidity-surplus banks to provide funds to liquidity-short banks on a continuous basis. This will address shortage or surplus conditions at specific banks within the banking system without the need for central bank intervention.
“It is expected that interest rates in the interbank market will align with the NBR, but if this is not the case, the NBE will intervene using OMO auctions to ensure that the interbank interest rate converges to the NBR,” the central bank said.
“The money market platform and other important initiatives in the very near future will support NBE in fulfilling its vital responsibilities, especially ensuring price stability as entrusted to it by its own strategy plan and NBE establishment proclamation,” it added.
Eshetu recalled that the most recent step was part of a strategy plan that the NBE board had approved almost six months prior. “It has been revealed that some current practices, like bank lending rates and deposit interest rates, will persist, even though the market is intended to determine interest rates,” he states “Depending on global experience, other interest rates, like the bank prime rate, may be higher or lower than the policy rate.”
As analysts indicated, the new step would not have a catalytic change as part of the interest rate will still exist.
“As they regularly declare, the government’s and the central bank’s primary goal is to stabilize prices, particularly inflation. This includes the most recent policy implementation,” Eshetu said.
The government is projected to reduce inflation to eight percent by 2026.
He said the money that was pumped into the market might be impacted by the most recent policy implementation, “Although the governor is making an effort, the central bank cannot control certain external factors that contribute to inflation.”
According to experts, addressing the price increase sustainably depends on the supply side. “The central bank will contribute in this regard by facilitating funding access for the advancement of agriculture and raising the productivity of the industrial sector.”
Eshetu explained his perspective, stating that the government requires foreign currency to enhance the supply of essential import items, primarily inputs, which are crucial to accelerate the economy through agriculture and manufacturing activity impacted by the shortage of hard currency.
“In general, the measures that the government is taking are targeting the support criteria from the IMF, World Bank, and World Trade Organization accession,” he said.
“As per my understanding, the governor’s approach is to lead the monetary policy according to internationally accepted standards agreed upon with international partners and financiers to access international funds, in addition to reducing direct advances,” Eshetu clarified.
Experts in the field said that developing the money market is crucial to the feasibility of a capital market. This will also support the growth of the securities exchange that the primary market corroborates.
A competitive treasury bills (T bills) on a market basis has been introduced under the Home Grown Economic Reform Agenda I.
NBE hired a Dutch consulting firm to develop the interbank money market, which focuses on building capacity for banks, the legal framework for secure financial transactions, exchange infrastructure like CSD, and trading platforms, among other things.
Ethiopian Airlines has announced that airline tickets for passengers outside the country will now only be available for purchase in US dollars. Previously, air transport tickets for international travelers could be bought using birr if they come to Addis Ababa, but this change is effective immediately fom Monday July 8, 2024.
The new policy will affect companies with the issue of limited dollar availability. Concerns have been raised about the potential impact of this decision, with sources indicating that it could significantly affect their operations.
Traditionally, Ethiopia has allowed foreign tourists to purchase air tickets in local currency during their visits. However, under the new system implemented by Ethiopian Airlines, these purchases must now be made in dollars.
Last week Capital reported that the inability of airlines to repatriate funds from ticket sales in Ethiopia is hindering the country’s economic growth and recovery citing industry leaders.
As of June 2024, Ethiopia had $115 million in airline funds blocked from repatriation, the third highest amount in Africa behind only Algeria ($261 million) and the CFA Franc Zone countries ($140 million). This represents over 13% of the total $880 million in blocked airline funds across the African continent.
“The blocked funds issue is a significant constraint on our ability to invest and operate effectively in the Ethiopian market,” said Kamil Alawadhi, IATA’s Regional Vice President for Africa and the Middle East. “It undermines confidence, limits route network development, and reduces the economic benefits that aviation can deliver for Ethiopia.”
IATA’s latest industry forecast projects that African airlines will return to profitability in 2024, earning a collective net profit of $100 million. However, this equates to just 90 cents per passenger – well below the global average of $6.14 per passenger. Alawadhi noted that the blocked funds crisis in countries like Ethiopia is a major factor holding back the aviation sector’s contribution to economic growth across the continent.
“Aviation is a catalyst for jobs, trade, tourism and economic development. But we can only fulfill that potential if governments ensure airlines can repatriate their revenues without unnecessary barriers,” said Alawadhi. “Resolving the blocked funds issue in Ethiopia and across Africa needs to be an urgent priority.”
