By Muluken Yewondwossen

Treasury bills (Tbills) spot a drop in growth rate for the 2022/23 year despite being the go to alternative source of fund for the government while the newly adopted Treasury bond picks up pace to mobilize over 38 billion birr, with close to a quarter ownership by the state owned commercial bank. 

When the government reformed the Tbills at market determined rate starting from the end of 2019, the move caused it to mushroom and attract big players like financial institutions.

It has also become a big instrument to reduce direct advance (DA) significantly to fill the government expenditure demand.

For instance the stock of Tbills rose by 163 percent in the 2021/22 budget year to reach 317.7 billion birr.

In the stated period, the net issuance of Tbills with varied maturities was approximately 196.7 billion during the previous year. 

When it stood at 317.6 billion birr from 121 billion birr of June 30, 2021, the exaggerate growth rate made the Tbill share to domestic debt to reach at over 20 percent, which is a double climb in a single year.

While for the year that ended in June 2023, even though there was a growth rate in the market, it shrunk significantly compared with the same period of the preceding year.

The latest debt bulletin of Ministry of Finance (MoF) indicated that the total outstanding Tbills has increased by eight percent to reach 341.9 billion birr from over 317 billion birr a year ago.

“Throughout the period, there was a net increase of roughly 24.2 billion on TBills of various maturities,” the bulletin explained.

The performance indicated that the growth rate and fresh bills purchase dropped noticeably that experts stated that lack of resources at commercial banks, who are major players on the market and introduction of new bond by the government as the main reason.

For the year that ended June 30, 2023, the Tbill share for total domestic debt also shrunk to about 18 percent from over 20 percent, of a year ago.

As part of the new policy applied in the past budget year, the government through the National Bank of Ethiopia introduced a 20 percent Treasury bond that became effective on November 1, 2022.

As per the directive ‘MFAD/TRBO/001/2022’, all banks except the Development Bank of Ethiopia (DBE), a state owned policy bank, were set to invest 20 percent of their loan portfolio in Treasury bonds.

The treasury bonds were issued to each bank on a monthly basis having a maturity period of five years with each bond having two percentage points higher than the minimum saving deposit rate which is currently at seven percent.

The main aim of introducing the bond was to give space for the government to mobilize resource from different resources to fill its budget gap and pause on DA, which has shown spike in the past and preceding budget year in connection lack of resource from potential partners who provided direct budget support for the government.

That forced banks including the stated owned financial giant, Commercial Bank of Ethiopia (CBE) to buy a bond from the central bank, which experts argue contributed to slow down the Tbills market.

In the reported budget year, the stock of Treasury bond has reach at 38.3 billion birr.

The stock of this instrument was 25.6 billion birr at the end of the third quarter of the budget year that increased by 12.65 billion birr in last three months of the budget year to reach over 38 billion birr.

From the total Treasury bond, the share of CBE has been over nine billion birr, which is 23.5 percent, while the remaining 29.2 billion birr is other commercial banks contribution.

In related with DA in the year the total outstanding of DA, which was 236.5 billion as of October 7, 2022, was converted into long term bond and a new DA was issued, totaling 120 billion birr.

That makes the total amount of direct advance the government received from the central bank to be 180 billion birr, which included 60 billion birr that issued in the first quarter of the 2022/23 budget year but converted to long term bond.

This amount of DA is the biggest ever since the government took strong stand taking the DA, which is one of the major instruments to gallop inflation that is now one of the highest in the continent.

While experts argued that the circumstance on the ground pushed the government to access the DA due to unexpected and vital expenditures like aid and rehabilitation works that were aligned with conflicts mainly in the northern part of the country, when support from foreign partners was very minimal.

By Muluken Yewondwossen

The Ethiopian Securities Exchange (ESX) plc, evolves from being just a projects office as five founding members and a board of directors come to the picture to bring the ESX dream to life with preparations underway to make the exchange as a full blown company in the coming few weeks.

The company is now expected to raise the remaining initial investment in the coming three months.

As of Tuesday October 3, the first capital market in Ethiopia has got its first five investors who will contribute a 25 percent investment, followed by the assignment of the founding board of directors which will be chaired by Helawi Tadesse.

According to the capital market proclamation no. 1248/2021 article 34 sub article one of the affairs of a securities exchange shall be to be managed by a board of directors whose members shall be elected by the shareholders of the securities exchange.

Sub article two goes on to add that the election of the board of directors of the securities exchange shall be effective subject to consent of the Ethiopian Capital Market Authority and the third sub article added that if the Authority does not express its objection within 30 days, the election of board of directors of the securities exchange shall be considered as having received the consent of the Authority.

So far the responsibility of the formation of the company, ESX, will rely on the newly assigned board which is expected to hire the CEO and staff to give life for the highly anticipated capital market, which will be an alternative source of finance that plays a significant role on the way to boost the economy that is led by the government or private sector.

According to Tilahun E. Kassahun, ESX project office lead, since the capital market got its founding investors, it is no longer a project office as things are starting to take shape, “We are on the verge of establishing it. Currently we are on the process to get the license as a company which may take a few weeks.”

He told Capital that the board, which is responsible for the establishment and leadership of the operation of ESX, has started its activity albeit being formed very recently.

“So far the board has held two meetings including the last one which was held on Friday,” he said

The board is in charge to hire the CEO who will be an interim leader until the remaining shareholders are included in the coming months.

The remaining shareholders will be included in the coming three months to fill the remaining 75 percent capital.

In the past one and half years, the project office has been engaged in developing business planning, strategy, rule book, evaluating suitable technologies and assessing others relevant inputs that are required for the upcoming company.

Organizing team, issuing RFP for technology and other works is the upcoming operation that will be taking place in the coming weeks for the board, which are said to hire a leadership that shall manage the process.

“As per the frameworks of others capital market the major responsibility is resided on the board of directors that would have also different committees and management that it will be formed,” Tilahun explained.

He added that at the current stage the board will give priority to review business plan and strategy and adapt it prior to appointing the CEO.

Besides Helawi, who is well known as the Vice President of Zemen Bank and also familiar for the business on her career in the US, Eleni GabreMadhin, Fekadu Petros, Hinjat Shamil, Tewodros Mekonnen, Yasmin Wohabrebbi, Deputy CEO of EIH, and Zemedeneh Nigatu have been assigned as board of directors.

On the historical event that was held on Tuesday October 3 at the Ethiopian Investment Holdings (EIH) HQ, five founding members; Ethiopian Shipping and Logistics (ESL), Ethio Telecom, Ethiopian Insurance Corporation (EIC), Berhan Ena Selam Printing Enterprise and EIH itself signed as the first investors of ESX.

As per the plan ESX will have close to one billion birr equity funding inclusive of sterilized capital, while the equity contribution will be more than 850 million birr.

When the capital market starts operation it may manage the trading of different type of treasury bills, interbank market, Treasury bond, corporate bond, REPOs, commercial paper, equity and other products.

Its revenue is also expected to reach 1.5 billion birr by 2033 from 5.9 million birr, which is the first year of starting business. As per the analysis the company will be profitable in 2028 and its profit will climb to over a billion birr by 2033.  

Potential members will be financial institutions, brokers, dealing members as investor and non-trading members and expected it may 50 trading member.

The founding investor EIH, formed in December 2021 as one of the largest sovereign wealth fund (SWF) in Africa, has become a member as expected. The SWF that have over USD 36 billion asset manages 26 huge public enterprises comprised from transport, finance, manufacturing, trading, hospitality and construction that includes the mammoths  including Ethiopian Airlines Group, Commercial Bank of Ethiopia, Ethiopian Electric Utility and Ethiopian Sugar Industry Group.  

The telecom, Ethio Telecom that has close to a 130 years of business operation in Ethiopia is also selected as to be one of the state owned public enterprises to invest on the ESX.

The enterprise, which is also member of EIH, is one of the most profitable public enterprises. It is also on the process to sale part of its share for foreign investors and Ethiopian. Experts said that becoming an investor for ESX was as expected for the telecom giant.

The other aged business entity Berhan Ena Selam Printing Enterprise, which played a big role on the printing industry has become part of the founders of ESX.

Shitahun Wale, CEO of Berhan Ena Selam, recalled that his enterprise is a 102 years old firm that has molded the country in different economic spheres.

“In general, the enterprise work practice and its financial administration has made as to be one of the EIH enterprises as founding members of ESX, and we are delighted to be part of the promising business venture,” he told Capital.

“He said that as per the EIH plan and as an enterprise we have massive plans to attain in the coming years as per the five year strategic plan,” he added.

Similarly ESL public relation head, Demissew Benti, said that the selection of his company to be part of the capital market is recognition of the logistics giant, its capacity and contribution that it provide for the country. He said that the 60 year old enterprise, which is the only deep sea vessel operator in Africa, will fetch the benefit that will be secured as being a member of ESX.

The other EIH member, EIC, that is the biggest ever insurer in Ethiopia with almost 47 years of experience, is also expected to tap the opportunity that shall be available on the new financial entity.

The Ethiopian government decided to establish the capital market to support the development of the national economy by mobilizing capital, promoting financial innovation, and sharing investment risks as an alternative means of saving, reducing reliance on external sources of financing.