By Muluken Yewondwossen

Government borrows 17 billion birr from the National Bank of Ethiopia (NBE), in the first quarter of the budget year, whilst disclosing that direct advance (DA) will only be used as a last resort to fill the budgetary shortfall.

According to the Ministry of Finance’s (MoF) quarterly debt report, the government received 17 billion birr during the first three months of the 2023/2024 budget year.

When compared to a similar period of the 2022/23 budget year, which was 60 billion birr, this year’s figure is far lower.  

The 236.5 billion birr DA that were converted to long-term bonds as a result of the October 2022 occurrence included the 60 billion birr that were issued in the first quarter of the previous budget year.

In a statement released in August, the government through the NBE said that various fiscal and monetary tools are being applied to fight inflation. As noted, one of them was the reduction of DA, which is one of the contributors to runaway inflation.

According to the decision, NBE would only lend up to one-third of what it did the previous year and drastically cut its DA to the government in this fiscal year.

“Agreements have been reached with the MoF to utilize this facility as a last resort in the event that the market is unable to generate enough Treasury bills (T bills) and Treasury bonds, which were imposed on all commercial banks, including the state-owned Commercial Bank of Ethiopia, a year ago, to collect 20 percent of each loan disbursement,” NBE cited in August

The government has authorized 801.6 billion birr in expenditures for the 2023/24 budget year, which is about the same as the year prior.

The government now intends to collect 479.5 billion birr in taxes during the budget year, accounting for 59.8 percent of the authorized budget.

With a net share of 2.1 percent of the GDP, the deficit of the declared over 801 billion birr budget is 281.05 billion birr and from the authorized budget, the deficit accounted for 35 percent.

According to the MoF’s budget statement, loans for projects, domestic loans, and loans to protect essential services would be used to close the deficit.

Of the authorized budget, the percentage of domestic loans is 30.2 percent, while the share of the remaining two loans was 4.8 percent.

According to MoF, the size of the domestic loan will be 242 billion birr and will mostly consist of DA, T-bills, and Treasury bonds.

Including the 60 billion birr that was taken in the first quarter of the 2022/23 budget year and converted into long term bond in the past budget year, the direct advance amount was 190 billion birr.

According to the MoF report, as of September 30, 2023, the total outstanding debt of DA had grown from 130 billion as of June 30, 2023, to 147,000 million. The Ministry’s annual debt bulletin from the previous year indicated that the outstanding debt was 120 billion birr, while the most recent report shows a 10 billion birr increase.

In compliance with Directive No. MFDA/TRBO/001/2022, which requires commercial banks to buy a five-year treasury bond at 20% of their new loan disbursement, a new domestic debt instrument was introduced on November 1st, 2022. As of September 2023, the total amount of this debt instrument was approximately 48.4 billion birr.

It was 38.2 billion birr as of June 30, having grown by 10.2 billion birr during the first quarter of the current fiscal year. On September 30, 2023, there were 371.8 billion outstanding T-bills, up from 341.9 billion birr on June 30, 2023, a rise of 8.75 percent.

As of September 30, 2023, there was 1.9 trillion birr in total domestic debt, 2.23 percent more than there was 1.9 trillion birr on June 30, 2023.

As of September 30, 2023, the public sector’s total external debt was USD 27.73 billion, down from USD 28 billion as of June 30, 2023.

The MoF stated in its report citing, “The main reason is a relatively lower disbursement in the quarter compared to principal payments, another factor is that a stronger USD against other currencies leads to lower external debt in terms of USD.”

This 1.23 percent shrinkage between the two periods can be partially explained by exchange rate variation. IDA accounted for the majority of the USD 151.74 million in foreign public sector debt payments made between July 1, 2023, and September 30, 2023.

According to the report, there has been a decrease in the disbursement of external financing in the last two years. One reason for this decline in the total disbursement of external debt is that state-owned public enterprises, apart from Ethiopian Airlines, have not received a new loan in the last four years. The report explicitly said that low payments from Chinese creditors also play a role.

The principle, interest, and fees associated with paying off the foreign public sector debt came to USD 306.96 million over the reporting period.

The external debt’s present value (PV) as a percentage of GDP was around 13.1 percent, but the entire public sector debt’s PV was approximately 34.9 percent.

At September 30, 2023, 56.11 percent of the entire debt of the public sector was made up of domestic debt, and 43.89 percent was made up of external debt.

By our staff reporter

Ethiopia is at risk of losing of its coffee export to the European Union (EU) due to its failure to implement the new decision of the EU Deforestation Regulation (EUDR). The EUDR aims to address deforestation concerns associated with agricultural production and requires countries to take measures to combat deforestation, particularly in the agricultural sector.

Importers of coffee to the EU are reportedly scaling back their purchases in anticipation of the new law, which will prohibit the sale of goods associated with deforestation.

The EU’s commitment to combating deforestation and its associated environmental impacts is reflected in this landmark law. By banning the sale of goods linked to forest destruction, the EU aims to address the role of consumer demand in driving deforestation and climate change. This law is likely to have a direct impact on various sectors, including the coffee industry.

The scaling back of purchases from small farmers in Africa and other regions can be seen as importers’ proactive response to align their practices with the upcoming regulation. Importers may be taking measures to ensure that their supply chains comply with the new law, including sourcing coffee from producers who can demonstrate sustainable and responsible farming practices that do not contribute to deforestation.

The European Commission has also expressed its commitment to supporting producing countries and smallholders in complying with the EUDR. At COP28, the EU and its member states pledged 70 million euros for initiatives aimed at assisting these countries. These initiatives likely focus on providing resources, technical assistance, and capacity-building programs to help countries meet the requirements of the EUDR.

However, implementing the EUDR can be challenging in some developing countries like Ethiopia. Patchy internet coverage can hinder the mapping of land and monitoring of deforestation activities. Additionally, land rights disputes, weak law enforcement, and clan conflicts may further complicate efforts to gather accurate data on farm ownership and enforce regulations related to deforestation.

These challenges highlight the complexities involved in addressing deforestation and implementing regulations in developing countries. It underscores the need for comprehensive strategies that address not only environmental concerns but also socio-economic factors and governance issues to ensure sustainable agricultural production and trade.

The EUDR requires companies to digitally map their supply chains down to the plot where the raw materials were grown, which could potentially involve tracing millions of small farms in remote regions.

Moreover, because companies often don’t deal directly with farmers, they could be relying in part on data provided by multiple local middlemen, some of whom they also might not deal with directly or trust.

Coffee plays a crucial role in Ethiopia’s economy, generating approximately 30-35% of the country’s total export earnings. Furthermore, nearly a quarter of Ethiopia’s coffee is sold to the EU smarket.

Given the importance of coffee exports to Ethiopia’s economy, any potential decrease in exports, particularly to the EU, could have significant economic implications. It underscores the urgency for Ethiopian authorities to address the concerns raised by EUDR and ensure compliance to maintain access to the European market.

To mitigate the potential impact on the coffee sector, it becomes even more crucial for Ethiopia to prioritize implementing measures that promote sustainable and responsible coffee production. This may involve addressing deforestation concerns, enhancing land management practices, improving transparency in supply chains, and ensuring adherence to international standards and regulations.

“Efforts to meet the requirements of the EUDR and maintain access to the EU market should be accompanied by initiatives to support smallholder farmers, improve infrastructure, strengthen governance, and promote sustainable agricultural practices. By doing so, Ethiopia can not only protect its coffee export market but also contribute to the long-term sustainability of its coffee industry and the well-being of its coffee farmers and communities,” said one coffee exporter.

Shortage in foreign currency pinches exporters

By Muluken Yewondwossen

WoubGet Business Group, through Flowerport Perishable Plc urges government to give the node in obtaining foreign currency from European sources in order to set up a cold chain platform for the export of perishable fruit.

The massive logistics company, which was instrumental in getting Ethiopian roses onto the international scene, has been busy setting up its handling facilities near Mojo Dry Port, which is close to the Ethiopia-Djibouti railway line, in order to make it easier for exporters of fruits, primarily avocados.

When things did not pan out as expected owing to land parcel issues, Flowerport has now resorted to adapt to the situation.

The logistic company, a major player in handling inland transport for flower export, has entered into a 30-year lease agreement with Oromia Industrial Parks Development Corporation to use the Meki Rural Transformation Center (RTC), an existing facility, as a hub for preparing fruit for export.

According to Dawit Woubishet, Director of WoubGet Business Group, “The RTC will service the collected avocado from farmers with value added to it for export,”

“The Meki RTC is close to the location where we are proposing to establish a processing factory in accordance with the original design,” Dawit further explained.

The company’s first investment plan was for 350 million birr, of which the Development Bank of Ethiopia (DBE) provided some funding.

He stated that although the long-term loan has been granted by the state-owned policy bank, DBE, a temporary halt has been imposed due to the delay in obtaining land from the Oromia area.

“Since we can now utilize the resources that Meki RTC has to offer, we are searching for foreign exchange to finance the import of the processing plant that will be set up at the RTC,” Dawit said to Capital. According to him, it now costs up to USD 2 million to purchase the necessary equipment, “If DBE avails the foreign currency, we will be all set to buy the equipment.”

As he explained, since the next avocado harvest season won’t occur until the second quarter of 2024, there isn’t enough time to wait for the foreign currency.

“We are aware that the nation is experiencing a shortage of foreign currency, so if the policy bank fails to provide the foreign currency on schedule, we will apply to the National Bank of Ethiopia, the country’s central bank, to obtain the foreign currency from an overseas financier so that the company can purchase processing machinery, reefer trucks, cold chain, and packing houses,” he clarified.

He stated that although the Italian financier has consented to fund the project, the central bank’s guarantee is still required.

Thanks to initiatives taken in the previous few years, the firm was ready to capitalize on the recent harvest season, which brought with it a significant amount of production.

“Due to the delay in gaining access to the land, we were unable to utilize the previous harvest season, which took place in August and September. The avocado is currently scheduled for shipment in the next few months,” he stated.

“If we receive foreign exchange and import, the necessary machinery and equipment, we will begin exporting within the next six months,” he projected the set goals.

A few years back, however, an experimental program saw avocados grown at Bahir Dar, which is located some 650 kilometers north of Addis Ababa, transported by vessel.

The product demonstrated encouraging quality during the testing, despite certain supply chain difficulties.

One problem identified in the experiment was the absence of an adequate and well-functioning supply network, such as reefer containers and trucks, pack houses, and processing facilities.

Despite the country’s volatility presenting an issue, exporting avocados has been noted to have the potential to bring in a substantial quantity of foreign exchange. As data shows, 60 percent of the function in the perishable business is played by logistics.

According to experts, rather than being managed on the large scale commercial farms found in other countries, avocado production is managed by farmers in Ethiopia through cluster schemes.

As a result, the private sector plays a crucial role in facilitating, sorting and packing houses, trucks, and storage. Because of this, the government as said by many ought to directly assist the private sectors in developing the platform.

Ethiopia is making progress toward its goal of increasing the production and export of fruits and vegetables, thanks to the support of sea freight.

Because it offers a competitive advantage in the worldwide market, shipping perishable cargoes via boats has strongly been advised. Ethiopian fresh produce exporters and producers, together with other players in the fruit and vegetable sector, have repeatedly brought up this crucial problem over the years.

The government has been conducting several pilot programs and attempts to export perishable goods using boats that are packed in reefer containers in an effort to address the issue.

Avocados from Ethiopia have been shipped as part of the project to the European market, which is anticipated to grow in the upcoming seasons.

The perishable logistics firm already has 20 reefer trucks, but it also plans to add another 20 trucks of various sizes, including compact cars that will gather high-quality items down to the farm cluster.

The firm, which is well-known for being the industry leader in cold trucks, also plans to purchase ten reefer containers in order to speed the export of a new commodity that the nation has planned to replace hard money with in the upcoming years.