The Ministry of Public Enterprise (MOPE) is looking at the financial statement of Lominat Beverages Plc, to precede with the privatization process of the National Alcohol and Liquor Factory (NALF) which attracted a record bid from a local firm.
Lominat Beverages Plc owned by the prominent business personality Binyam Berhane and Brook Worku, who is also well known in the spirit industry, has offered 3.62 billion birr to fully own NALF, the biggest alcohol and liquor industry in the country.
According to sources at the ministry, for the final board approval the company needs to submit a financial statement indicating they are competent enough to own the business.
In the bid opening held in late June Lominat, Pure Alcohol and Beverages Manufacturing and Metadim Manufacturing tabled their offer. The last two companies, both are local, offered close to 1.7 billion birr and over 1.5 billion birr respectively.
Lominat’s offer was higher than the two other competitors and the initial price tagged by MOPE. Information from MOPE indicated that the floor price was 1.27 billion birr.
In June Brook, CEO of Lominat, told Capital that NALF is worth what his company offered. “To be frank the company is one of the most profitable public enterprises, and has a huge market in the country,” he said.
He added that he and Binyam, owner of Country Trading, created this partnership since Binyam has ample experience in local distribution and trading alcohol and sprits, and he has many relationships with multinational producers.
Experts said that it is a good move for the business community, who has been engaged in trading, with the manufacturing industry. The government has wanted the business community who had focused on wholesale and distribution businesses to manufacture products which are currently imported.
The major shareholder of Lominat, which was formed in 2014 by the two businessmen with the goal of joining the beverage and sprit industry, Binyam is well known in the import and distribution of various commodities including distribution and trading alcohol and sprits over three decades.
Lominat aims to develop the local market at an international standard. Brook stated that Lominat would provide import substitution and export products. Currently NALF has the export market. The products of NALF are prominent in the region mainly the South Sudanese market.
“We can produce the alcohol products and different brands that are imported from abroad and substitute exports by 90 percent,” Brook told Capital in June.
NALF is the collection of four factories three in Addis and one in Sebeta, 25km west of Addis.
Since the beginning of the first GTP the government has asked business actors, with capital, to invest in the manufacturing industry as per the industrialization policy. However the strategy was not fruitful. Lominat’s decision may change this as it is considered a big move that may attract other traders to join the sector.
Sources at MOPE said that the Ministry is waiting for the company to submit the expected documents for final approval. Experts said that owners of Lominat have ample capacity to show their financial competence.
In the 2016/17 budget year NALF’s sales were 607 million birr with a growth of 132 million birr compared with the 2015/16 budget year.
The net profit of 122.4 million birr after tax, which has showed a 30 million birr increase within a year, is also a record amount registered by the liquor factory. Their latest expansion is expected to significantly increase their profits further.
Lominat takeover of national liquor factory in limbo
World bank to directly support Ethiopia
The World Bank and other development partners announced they will begin providing direct budget support which was suspended 13 years ago, after the 2005 election.
During his latest press conference Prime Minister Abiy Ahmed (PhD) said international partners were attracted by improvements in peace and security and political reconciliation. In 2005, the World Bank and other donors suspended direct budget support to the Ethiopian government following a post-election crackdown on demonstrators that left 200 people dead, tens of thousands detained, and dozens opposition leaders and journalists in jail. At the time, donors expressed fears of ‘political capture’ of donor funds by the ruling party.
Yet aid was soon resumed under a new program, ‘Protection of Basic Services’, which was changed to ‘Promoting Basic Services (PBS)’, both have similar purposes and channeled money directly to district governments.
These programs made impressive strides in education, health, agriculture, water and rural roads, without giving direct support to the federal government.
With regards to direct budget support the government is responsible for managing funds for any purpose.
However opposition groups and human rights organizations said that financial assistance to the government was being used to finance repression. This led partners like the Austrian Development Cooperation, the Africa Development Bank, the UK’s Department for Intentional Development, the European Union, the Italian Agency for Development Cooperation, and the World Bank to refrain from direct budget support and later introducing PBS to allow them to track the financial aid.The federal government via the Ministry of Finance and Economic Cooperation (MoFEC) is responsible for submitting an audit report under relevant guidelines for World Bank financed projects.
According to Abiy, for the first time the WB has agreed to provide direct budget support, amounting to USD 1 billion, in the coming months. Haji Ibsa, Public Relations Head at Ministry of Finance and Economic Cooperation, hopes the agreement to release the finance may occur in September.
“Because the country’s political condition has improved international partners are pledging to support us,” Abiy added.
Some sources said the WB agreed to approve USD 2 billion in different phases.
An expert at MoFEC, who wants to be anonymous, told Capital that the WB finance is a good start for supporting the economy. “It will be directly managed by the government which will allow them to undertake some of projects without the partners’ consent and in areas that may not directly be affiliated with basic services,” an expert at MoFEC with over 40 years of experience, explained.
Experts said that the direct budget support is being provided at a pro-poor interest rate with a long term grace period and payment period.
Currently in PBS III there are three programs called A, B and Enhancing Shared Prosperity through Equitable Service (ESPES), which are promoting basic service and improving the quality of government services at regional and local levels, strengthening the capacity, transparency, accountability and financial management government at regional and local authority levels, and improving equitable access to basic service and strengthening accountability and institutionalizing critical systems at the decentralized level respectively.
The MoFEC expert said that the recommencement of the direct budget support would not stop the PBS program. “We have signed the three year PBS III project extension in January and it will continue for the coming three budget years,” he added.
The program looks at policy conditions and macro-economic indicators like exchange rates and balance of payment.
In the past such kind of direct budget support would use analysis from the International Monetary Fund (IMF) consultation on the macro economy, which is well known as Article IV, that indicates the condition of the country’s economy. “I think the previous format will be applicable on the current budget support process,” the MoFEC expert added.
With the PBS they were not using such kind of macro-economic indicators, while partners directly provided support.
This will also help with the government’s plan to partially privatize some businesses.
Macroeconomic committee changes forex rules
The macroeconomic committee that Prime Minister Abiy Ahmed (PhD) recently formed passed several new economic rules.
The committee’s major goal is to find ways to bring more hard currency into Ethiopia. According to the Fitsum Arega, Chief of Staff at the Prime Minister’s Office, the committee has improved the interest rate on the controversial 27 percent National Bank of Ethiopia (NBE) bill that private banks are required to purchase every time they disburse a loan.
Accordingly the interest rate that was 3 percent with a maturity of five years has now increased to 5 percent. The NBE bill imposed as of April 2011 that replaced the directive limiting banks’ ablities to provide loans, remained a controversial directive between the government, financial firms and international financial institutions like the International Monetary Fund (IMF). In its yearly consultation known as Article IV IMF frequently insisted the government lift the NBE bill directive because they felt this would help the private sector obtain finance.
Local financial firms are also claiming the interest rate did not take into consideration the inflation rate and the conventional minimum interest rate that the government set. When the directive becomes effective the minimum saving interest will change the NBE bill maturity was 3 percent until this week.
On different occasions when the private sector met with government officials the issue has been one of the major points. Financial firms have also asked the government to lift the scheme and recently the private sector submitted a proposal asking the government to cut the percentage by half. However Hailemariam refused and argued that it is not the agenda of the business community, and instead was being promoted by international organizations.
The government argued that the directive helped reduce the money circulation, reduce inflation and gain finance for developmental projects that it provides via its policy bank, the Development Bank of Ethiopia.
Experts said that the current decision made by the macroeconomic committee incicates the government will continue.
In a meeting chaired by Prime Minister Abiy Ahmed (PhD), the Macroeconomic Committee raised the interest rate yield for a “27% NBE bill” that requires private banks to purchase the National Bank of Ethiopia (NBE) bonds from the current 3% to 5%.
The Committee also removed the current Diaspora account limit of USD 50,000, according to Fitsum.
Diaspora account holders can now save an unlimited amount in foreign exchange, Fitsum said on Twitter.
NBE’s purchase of 30% of the foreign exchange earnings of the private banks will be at mid-rate instead of the current buying rate, he added. Since October 2017 NBE announced that private banks must sell 30 percent of their hard currency at the amount they purchased it, which was also protested by banks.
As per the Committee’s decision the list of business that are eligible to accept payments in foreign currency has also been expanded to include airport telecom services, chartered private airlines, guest houses, specialized clinics & hospitals serving foreign clients, he indicated.
Previousely tour operators, hotels, the imigiration office, duty free shops and the postal service were organizations allowed to accept foreign currency.
Trouble Ahead
By and large PM Abye Ahmed’s FIRST press conference went relatively well. Except it was long, way too long, with no Ah-Haaa moment for the viewing public!
In general press conferences are said to serve a useful purpose: they allow heads of state to explain their policy decisions to the public, and they provide the press, working on behalf of the public, the opportunity to hold the head of state accountable for those decisions. In truth in this first press conference nothing the PM said merited its own news story. The questions put to him either wasted the time of all involved, or were pitifully easy to disarm with non-answers. Only one or two questions were substantive enough to generate interesting comment. Also the format did not allow any follow-up questions, underlining how poorly the conference was organized, or rather how restrictive it was.
Anyway what did we learn from this first press conference:
We saw a PM in search of a political ideology. Today there are game-changing influences from the world’s new economic powers on one hand, and growing ethnic nationalism and increasing mob rule on the other. We find it strange that there is very little, if any, attempt to identify the ideologies in play in a changing Ethiopia.
We heard a PM who understands that Ethiopia faces serious conflicts, threats of terrorism, ethnic division, environmental degradation, poor governance, rampant corruption and increasing inequality but with no new ideas or legislative programs to address these issues.
We observed a PM who favors for a return to traditional Ethiopian values such as solidarity, nationalism, and humanism on one hand, and seeking to exploit the materialistic values of capitalism for development, on the other. In our opinion two conflicting discourses.
In brief, there was no ‘Ethiopia Dream’ vision, but a confident PM with all his usual deferential form and very little specificity on his policies. But who cares? For many Ethiopians he is their hero. He is the savior of the nation. They sleep more soundly now, that he is in charge at Arat Kilo.
Let’s keep our observation, rather our guessing going:
Will the PM keeps on ignoring calls for laying out his political and economic reform agenda to the public? We think he will delay laying out his agenda for a short while. Why? Because he (the PM) has barely started his new job, and delivering effective reform are never easy. To his credit he has set himself out to be a transformative leader. He has promised to establish a decisive role for market forces, and to overcome and control the vested interests which stand in his way. Let’s wait and see.
Will the PM and opposition parties agree on the principles for conducting democratic elections? We doubt it. Increasingly the political space is being filled with political extremists, who exploit the general discontent with the exclusion from decision-making. This situation feeds uncertainty and conflict.
Will the Abye – Essayas public embrace be enough to cement the peace between Ethiopia and Eritrea? We don’t think so. Peace building is a multi-component process requiring political and economic solutions within the framework of nation-state. Much remains to be done to identify and strengthen the structures which tend to solidify peace to avoid relapse into conflict.
Will the PM explore the possibility of calling a constitutional convention to reform power and responsibilities between the national government and state governments? There is no sign of it. Without even dealing with other critical issues, the current political space keeps few regional states and their citizens’ voices on the outside looking in. It’s long past time to change that relationship.
Will the PM propose new reforms to liberalize the economy and launch programs to re-energize the economy? The odds, based on what we’ve seen so far, looks very slim. So far, there is no talk of a bold agenda for economic change, the few actions undertaken remain disjointed and frankly unimpressive. Sooner or later, investors are bound to notice that there is little for the economy to keep growing.
Of course we have frequently been wrong in our analysis of things. When trying to understand and comment on Ethiopian politics, we are bound to draw a few stray lines. And we will no doubt be proven wrong in many of our opinions and predictions.
So dear readers… please feel to correct us, or help us get our predictions right.
