Managing Director of the International Monitory Fund (IMF) Christine Lagarde visited Addis Ababa and held discussions with Ethiopia’s Prime Minister and President. During the discussions with media on Friday, December 15, 2017, Lagarde stated that the IMF welcomed the 15 percent devaluation on the Birr but also called for a more flexible monitory policy.
“We welcome the devaluation that took place by 15 percent and I also indicated to the authorities that we would believe in order to support an export driven policy which is currently advocated by the authorities, a more flexible monitory policy would probably be more appropriate, and that is what we are recommending,” she stated.
She further underlined that to address imbalance that is currently seen in trade and boost more export is within reach if the right measures are taken, including in terms of monitory policy.
“I think we are a short while away from shifting to more export, less import, the terms of competitiveness are improving and this is certainly something that we support,” she stated. Mentioning concerns, Lagarde mentioned that there are issues with debt burden and debt service.
“There are areas clearly in terms of debt burden and debt service where we are concerned and where we hope that the situation can improve. But it is predominantly a message of expectations and support that we want to deliver,” she said. She further stated that she was extremely satisfied with the dialogue she has had with Ethiopian officials and is convinced that the second phase of development that is being advocated in the country will actually deliver good results.
In her meeting with Economic Commission for Africa’s Executive Secretary Vera Songwe, Lagarde stated that the demographic phenomenon on the continent needs to be monitored and dealt with.
“High single digit growth rate which are short of delivering on per capita basis, given the demographic phenomenon, are observed in some countries. Regrettably there are quite a few countries on the African continent that are not growing at those rates, there are 17 of them actually which are in per capita basis, are seeing income go down and not go up.”
“So while we are saying the sun is shining on the global economy, there are too many countries that are left behind on per capita basis. We clearly have to address their particular concerns and their particular fundamentals to see how we can all help. Move them to a better, more sustainable more inclusive growth going forward,” Lagarde said.
On her part Vera Songwe also underlined the need to focus more on demographics on the continent. “I think when a big institution like ours meet, it is important that we look at what are the innovative solutions that we can bring to the continent. The question of demographics has been a big one; it continues to be a big one.”
“For a long time we have talked about the demographic dividend, now we are asking ourselves do we have a dividend or are we going into a demographic trap which basically means we look at GDP per capita, look at issues of inequality and so on. But even though countries grow at 7 to 8 percent which we celebrated for the last two decades, with the rate of population growth, we probably need to be doing 15 percent to be able to see substantial increases in GDP per capita,” Songwe said.
She also underlined that to achieve the above, one of the innovative things that can be done is to bring institutions such as the ECA and IMF together to work on new models of growth for the continent.
IMF Managing Director welcomes devaluation, voices concern on debt burden for Ethiopia
New rule to discard postdated cheque system
The Council of Minsters is going to forward a new regulation to parliament which allows a payee (person to whom money is paid or is to be paid) to withdraw cheque money from banks without waiting the time set by the person who wrote the cheque. Usually people will write a postdated cheque if they do not have the proper amount of money in their bank balance.
In the current working system the payee withdraws money from the banks starting from the day written on the cheque by the person who wrote it. However, the new rule which is drafted by the National Bank of Ethiopia and requires an endorsement from the parliament allow the person cashing the cheque to get the money from the bank immediately.
The new rule is expected to be operational before the end of this fiscal year.
Sources who are close to the issue told Capital that the new rule will minimize the power of informal money lenders that many people across the country use.
“As a country that requires modern banking system informal money lending is not what we need. The new system will diminish trust between borrowers and informal lenders. Because if the borrower knows that the lender can get money from the bank after the cheque is written they will be afraid of making a deal with informal lenders which ultimately will cause them to go to banks to follow the legal procedure.’’
The source added that the new rule also will discard the use of cheques as guarantee of loans.
“Some people use cheques as a guarantee of getting a loan to borrow money. For example if one thinks that they will get one million birr in the next three months they will write a cheque of 1.5 million birr for the lender that will be withdrawn after six months and then they will return the money to the lender before the effective day of the cheque. By these method cheque is not used as a means of transaction but if we discard timeline of cheque people may not use it as guarantee because the lender get their money out of the bank on the day they issued the cheque.’’
Bank professionals said that Ethiopian Revenue and Custom Authority (ERCA) which uses a bank statement for tax calculations is the other factor causing business people to use cheques as means of guaranteeing they will get their loans repaid.
Abey Zewde who is an economist told Capital “if somebody lends some money from someone and the money goes through the bank ERCA assumes that the money coming from a means of transaction which allows people to pay taxes on what they don’t sell. So to escape these kind of things they borrow money from people by writing a cheque and they pay it to the lenders before they withdraw the cheque money from the bank.’’
Last year the National Bank of Ethiopia (NBE) and the Ethiopian Bankers Association (EBA) introduced a system that would control fake cheques and provide a homogeneous bank cheque payment service.
EEP, Corbetti Geothermal ink first power purchase agreement
The Ethiopian Electric Power (EEP) is going to sign its first ever power purchase agreement with Corbetti Geothermal after a long delay on two separate power feeders. The agreement is expected to be sealed off next week.
The company had previously agreed with the then Ethiopian Electric Power Corporation in 2013. They were in the process of producing a total of 1,000MW power at the location called Corbetti and the surrounding area, Shalla Woreda, East Arsi Zone of Oromia, 270km southeast of Addis Ababa.
Mekuria Lemma, Strategy and Investment Director with the EEP, told Capital that the two bodies agreed on a feed in tariff in the beginning. He said that EEP has agreed to pay USD 0.075 cents per kwh for the Corbetti project. The Tulu Moye and Abaya projects which will be developed in the second phase will contribute to Corbetti Geothermal to gain USD 0.069 cents per kwh, according to Mekuria.
“They have a scale advantage on the Tulu Moye and Abaya projects so the price has also been reduced compared with Corbetti,” he added.
If the project becomes effective it would be the first large scale private power project for the country that will be connected with the national greed on the power purchase agreement basis.
Mekuria said that the first phase of the project that will take place at Corbetti will take 7.9 years and enable to generate 500 MW project.
“A Geothermal energy project by its nature is not expected to be fully operational in a few years,” EEP officials said. He said that because of this the power production will reach 500MW in the long run.
“We will receive the first 20MW within two years and it will continue on its growth step by step,” he added
Corgetti Geothermal was initially formed by Ethiopian affiliated company called Rift Valley Geothermal and its Icelandic partner Reykjavik Geothermal. Currently Berkley Energy and Iceland Drilling have joined the company. Berkley is the major shareholder with over 53 percent share.
The two sides that finalized the negotiation in the beginning of the Ethiopian New Year are expected to seal their agreement on Tuesday December 19 at the Sheraton Addis.
The country’s energy development is mainly dominated by hydro power, while wind has become the other alternative. Even though the country has a capacity to produce 10,000mw from geothermal the current production is not higher than 50mw.
On its own project EEP has also planned to generate about 75mw of energy from geothermal at Aluto Langanoo, which is closer to the project of Corbetti Geothermal. But the Aluto project is not going as planned.
Djibouti continues rapid rollout of infrastructure projects
Djibouti, which is undertaking massive mega projects related to port and logistics services, announced that it will continue similar projects with the Public Private Partnership (PPP) to avoid a lot of external debt.
Ilyas Moussa Dawaleh, Minister of Economy and Finance of Djibouti, said that his country will continue its massive economic developments.
Ilyas said his country has numbers of investments in the pipeline. “To be honest we are coming to the limit of our public financing capacity and we should not look exclusively to public investment for regional infrastructure as well as national infrastructure for diversifications,” he explained.
In the past few years the government of Djibouti has carried out massive mega projects in infrastructure, port service and other major economic pillars.
Some of the major mega projects are the expansion and new ports of the country that are targeted to accommodate the growing import/ export demand of landlocked Ethiopia.
Within a single year in 2017 Djibouti has inaugurated three new ports including Doraleh Multipurpose Port (DMP), the biggest port facility for the country and in the region.
Other new companies; Djibouti National Shipping Company, Red Sea Bunkering, Air Djibouti , and railway also enjoy the logistics and infrastructure business through government ownership or on a JV basis.
Different reports have also stated that the country that has close to USD 2 billion GDP has an investment of six times more of its GDP or about USD 12 billion by the government and the private sector.
However the country registered massive growth in the past few years as recognized by international institutions and international partners like the International Monetary Fund who expressed their concern that the country’s external debt has been growing significantly.
They advised the government to slowdown some of the projects.
However the government of Djibouti stated that it will continue with in projects using different methods than it had previously used.
“Opportunities are there. Finance is not an issue as capital resource is available around the world. Capital availability in the world is highly in abundance,” Ilyas said.
“Now it is all about who will implement the sound policy, the regulatory framework, and who will be dependable for direct investment. So we frame it and under implementation of PPP so the investment will be increased once the business environment is made and fixed properly. But the priority is stability and peace of the country,” the finance minister explained.
He said the private sector’s role is key to transformation.
Other projects are also expected to enhance the country’s development.
“The capacity of our ports is now 20 million tons in a year and in the coming four years it will be 50 million tones,” Ilyas said. “Even if that’s the case, we can’t afford to handle 100 percent of Ethiopia’s shipments alone,” he added.
He said that Ethiopia is right to see alternative ports in the region adding that he would do the same if he was leader of Ethiopia. “We still will be the major logistics provider for Ethiopia,” he added.
“We also need to diversify our market for other partners like China or countries in the Middle East and Europe. If we can manage up to 70 percent of Ethiopia’s international trade traffic volume, then my ports will be working to their capacity. The remaining must be distributed to the rest of the ports in the region,” he added.
