Archive for the 'Ethiopia' Category

World Bank $1.2bn to supporting financial sector in Ethiopia

President Sahlework Zewde (photo credit Ethiopian News Agency)


The World Bank has announced that it will give a $600 million grant and a $600m loan towards supporting reforms in Ethiopia’s financial sector including improving the investment climate, according to this story from Reuters, citing a statement on the World Bank website (couldn’t find this).

The Bank is also providing technical support. It will promote public-private partnerships (PPPs) “to improve efficiency in key sectors” including telecom, power, and trade logistics and the support would also help the Government “reduce inefficiencies and operating costs and improve financial performance” in these sectors. It aims to help Ethiopia attract more foreign direct investment (FDI) and raise export revenues.

The World Bank says its increased assistance is a response to reform pledges made by the Government since Prime Minister Abiy Ahmed took office in April. Ethiopia has a huge population of 105m people and a fast-growing economy, but the State and state-owned enterprises tightly control the economy and are increasingly crowding out the private sector. Investors hope this could be changing, according to Reuters.

The 2 overarching challenges identified in 2016 by the World Bank’s systematic country diagnostic study are: “The need for a sustainable financing model for growth, and inadequate feedback mechanisms to facilitate citizen engagement and government accountability”. The Country Partnership Framework is closely linked to the Government’s Growth and Transformation Plan II (GTP II) (2015/16-2019/20).

On the sustainability of financing growth, from the World Bank Country Partnership Framework for the period FY18-FY22:

  • “..if Ethiopia were to catch up with the average Sub-Saharan Africa (SSA) country in terms of financial liberalization, the rate of per capita GDP growth would rise by 1.9 percentage points per year.”
  • “Private sector credit is only about 9% of GDP in Ethiopia compared to more than 20% in SSA. The experience of East Asian developmental states such as China, South Korea, and Vietnam shows that private firm growth is needed to lead the development process.”
  • “While domestic savings have increased as a share of GDP in Ethiopia, the country has experienced a decline in the credit to GDP ratio, suggesting that increased savings are not always entering the formal banking system and/or are going into the booming real estate market. The Government has actively sought to raise domestic savings through measures such as expansion of bank branches among others… a key determinant of domestic savings is the real deposit interest rate. Since this rate is currently negative, households have strong incentives to channel monetary savings into informal savings mechanisms. A negative real interest rate is also a major obstacle to the development of a secondary market for treasury bills, as institutional investors would not earn a sufficient return for voluntary purchase of such assets.”
  • “Analysis suggests that the absence of a functioning capital market may become a binding constraint for growth and development as the country progresses. Since there are substantial needs for long-term financing in local currency by both the public and private sectors, a well functioning capital market (particularly the bond market) is essential to the long-term development of the Ethiopian economy. The current market is characterized solely by short-term treasury instruments of up to 1 year, the tenor of which does not match the long-term character of the actual investments. In addition, the money market is not functioning with virtually no existing interbank lending. However, there is an active informal market for equities, particularly for bank and insurance stocks, which in turn indicates that there is demand for services of a typical capital market. Failure to establish such a market may mean that future projects could not be financed in an ever-more developed economy. The evolution of this viable capital market will take time, and a comprehensive but targeted approach is required given its current nascent state.”

World Bank lending to Ethiiopia (source: https://www.worldbank.org/en/country/ethiopia)

Politics getting better, Ethiopia ready for business says Arkebe Oqubay at UK-Ethiopia forum

A packed room of investors and others assembled in London on 16 October to hear about business opportunities and the investment climate in Ethiopia. The occasion was the UK-Ethiopia Trade & Investment Forum 2018. The planned delegation had some changes, due to 16 October dramatic cabinet announcement where 50% of posts went to women, including top jobs such as Defence and Peace (Home Affairs). The conference was organized by Developing Markets Associates with WAFA Promotions.

Leader of the delegation was Arkebe Oqubay, Economic Advisor to the Prime Minister, who gave a detailed overview of events of the last 6 months and the big ambitions driving Ethiopia:
“Vision 2025 is to make Ethiopia the leading manufacturing hub for Africa, to sustain GDP growth of 11% for next 25 years, and 35% of exports for every year for coming years. This has created enormous opportunity for investors, including many opportunities for UK firms.
“We have been focused on human resources” he said. There are 50 public universities with 600,000 students, annually there are 100,000 graduates mostly form science, technology, engineering and mathematics.
“We need to build manufacturing capacity, every year our population increases by 2.3m, we need to create minimum of 1m jobs for the youth, including at least 100,000 jobs for university graduates. We need to generate more forex earnings and need to focus on exports, that is why we focus on manufacturing.

Dr Arkebe Oqubay outlining Government’s investment priorities (photo: AfricanCapitalMarketsNews)

“For the last 15 years we have been able to grow at 11% a year and for 2018 we will witness same rate of economic growth. For rapid economic growth to be sustained, it needs to be equitable. Ethiopia has increased average life expectancy, which is linked to poverty reduction. In 1990 the average Ethiopian lived for 44 years, and the African average was 50 years, but in 2016, the last year for which there are figures, the Ethiopian average life expectancy was 66 years and the Africa average was 60 years.”

Harriet Harman MP, Minister of State for Africa, UK Foreign & Commonwealth Office “Total trade in goods and services between UK and Ethiopia last year grew by 80%”

“In 2017 Ethiopia was recognized to show the highest growth rate of foreign direct investment (FDI) inflow with $4.2bn, of which 89% went into manufacturing, in line with the Government’s focus on industrialization. Ethiopia has been allocating more than 50% of federal budget to roads, railway lines, the largest air-cargo hub in the continent, and our largest focus on clean and renewable energy.” The FDI is expanding the industrial parks, which are being developed on principles of sustainability.

Politics first
Arkebe focused on political progress made since Abiy became Prime Minister in April:
1) Political reforms – ensuring all political parties come to the table, ensuring there is loyal opposition within the system to encourage and strengthen. This has been a rewarding process, all the opposition groups trying to work with the Government, political leaders who advocated violence have come back to peace and all have come to Addis and joined the dialogue.
2) Political and public dialogue, Abiy has listened to complaints and voices in all the regions.
3) Peace in the region is one of the major breakthroughs. Abiy approached President Issayas, the 2 countries are establishing diplomatic missions, people are moving in both directions, they are sharing infrastructure, ports and building communications. This was achieved without any intermediary. The aim is to make the Red Sea one of the most dynamic regions, all the countries, Ethiopia, Egypt, Sudan, Djibouti, Somalia, Yemen, Oman, UAE. Geopolitical peace will cut the cost of business and make it attractive to investments.
4) The internal process in the ruling EPRDF party. The Congress which happened in the last 2 weeks,fully backed the PM who was elected chair of the party with unanimous vote.

He also highlighted 3 challenges
1) “We have to create jobs for the youth, it’s a major factor of political turmoil, the only solution is to focus on job creation and new industries”.
2) “Our society is diverse, we are Christian but we are one of oldest Muslim countries, we have 80 diverse nationalities and our languages are completely different, like Japanese to English. We have to manage this diversity, and we set up the system of federalism, based on ethnic diversity. We are trying to make this more perfect from time to time.”
3) “The challenge is to make the political system pluralist and to build democracy. Democracy is fragile, look at Europe with 2 world wars and rise of fascism. Our 1995 Constitution allows all rights to be exercised. This is work in progress, we believe we are making good progress.”

Ready for business
The statement at the first industrial park opening after the successful EPRDF Congress: “We have been in political process and reforming, we are now back to business”.
One change is to open the logistics sector 49% to foreign investors, Ethiopian Airlines is linking with DHL Global Forwarding and there are huge opportunities as Ethiopia aims to become Africa’s logistics hub. Other sectors opening to foreigners include telecommunications.
Electricity costs 3 UScents per KwH, one of the cheapest prices in the world. Other attractions for manufacturers include duty free access to the EU and opportunities under the African Growth and Opportunity Act (AGOA) renewed for 10 years.
Advice for #FDI investors from Dr #Arkebe Oqubay “#Ethiopianization has been a good word, that was the motto in #EthiopianAirlines when managed by TWA in 1950s and 1960s”.

Buy Arkebe’s highly reviewed book on Amazon with this link (affiliate), published by Oxford University Press, and get details of his next book on China-Africa and Economic Transformation, due in 2019 also from OUP.

UK investors’ experience
UK firms talked of their investments

Saad Aouad, Founder and Chief Investment Officer, 54 Capital: Said they made their first investment in Ethiopia in 2014. They have invested $120m including: Addis Pharmaceutical Factory employs 1,000 at its factory in Adigrat, producing 80 pharmaceutical products to the $600m-$700m domestic market and set to expand, creating another 500 jobs; Aquasafe is a leading water bottling company, based in Debre Birhan; Bluebird platform takes stakes in food companies, personal care and Tena edible oil. With 168 investors on their books, 80% of them from UK, they have potential to make much more investment.

Reg Hankey, CEO, Pittards: Employs 1,600 with a “highly motivated, highly skilled workforce improving productivity every day”. Gloves made with Pittards leather, including at the Ethiopia factories, are sold to top professionals worldwide including 9 out of 10 top golfers and baseball players. The target is still to get to 5,000 employees, despite a road that is “not smooth”.

L_R: Darren Boyd (Tulu Moye Geothermal), Harry Anagnostaras-Adams (KEFI Minerals), Arkebe Okubay, Simon Tonge (DMA) (photo: AfricanCapitalMarketsNews)

Harry Anagnostaras-Adams, Managing Director, KEFI Minerals: There is $1bn of gold exports sitting in the ground at the Tulu Kapi gold project in Western Ethiopia. His company has already invested $60m in infrastructure and community projects and has top partners to bring in to make it work. “I desperately love my wife but she drives me crazy, that is Ethiopia. It’s a very alluring long-term game”.
Darrell Boyd, CEO of Tulu Moye Geothermal: Says geothermal 24 hour base load power is ideal for industrialization. They are planning £1.5bn investment to generate 520 MW geothermal over 4 phases in the coming 8 years. Now focused on phase 1 for 50MW with £200m investment in debt and equity. They are busy at site to get ready for geothermal drilling for 2nd quarter next year. “Ethiopia has done a lot of work over last few years to change its regulatory framework”.

Source UK Office for National Statistics

Why Ethiopia needs a stock exchange as it liberalizes

One of Africa’s biggest economies. Ethiopia, is launching a giant privatization campaign that could be lead to transformation, growth and liberalization. But there is no Ethiopian securities exchange, meaning citizens and domestic savings institutions may not be able to participate and the economy will continue to suffer inefficiencies and lack of transparency.

On 5 June Prime Minister Abiy Ahmed and the ruling party EPRDF set headlines alight by announcing a decision to sell stakes in the telecoms monopoly, long a cash cow for the Government. Investors will also be invited to buy stakes in Ethiopian Airlines, one of Africa’s fastest-growing and best-run airlines.

Zemenedeh Negatu, chairman of Fairfax Africa Fund LLC, a U.S.-based investment firm, and a former Managing Partner of EY in Ethiopia, commented in the Wall Street Journal newspaper: “The new leadership in Addis is smartly modifying and adopting policies and strategies that will sustain Ethiopia’s growth. I also strongly believe that these enterprises should be privatized by listing their shares in a local stock market, which should be established as soon as possible.”

Ethiopia was the world’s 2nd fastest growing economy in 2017 with 10.9% growth, according to the International Monetary Fund, which forecasts 8.5% growth in 2018, after a decade of growing at nearly 10% a year.

According to a Reuters report by Aaron Maasho: “It is unclear whether the Government would consider licensing foreign mobile operators. Interest might be limited if the only option is a minority stake in the monopoly.

“Analysts have said the government’s move falls far short of enabling full competition by multinationals. They note that by selling minority stakes the EPRDF is underscoring its view that the state should be a key player in the economy.” However, he notes “the step is still radical for the EPRDF.. and could indicate how 41-year-old Abiy plans to steer the country.”

Abiy Ahmed took office in April. The announcement also included a peace deal with neighbouring Eritrea in line with a decision in year 2000 that would cede disputed territory.

Both Africa’s telecom giants MTN and Vodacom told Reuters they are interested. MTN says Ethiopia “would be a natural fit for MTN’s existing pan-African footprint.” And Vodacom said “Ethiopia is an attractive market so it follows that there would be interest”.

A statement after a day-long meeting of the EPRDF’s executive committee said economic reforms are needed to sustain economic growth. It referred to foreign exchange shortages that mean there are too few goods in shops. Economists estimate that foreign reserves cover less than 2 months of imports.

Much of Ethiopia’s growth and successes at rolling back poverty are linked to the ambitious road, rail and electricity infrastructure investment and building projects run by the Government, which pours revenues from its telecoms, airlines and other monopolies to this. There is an ambitious strategy to transform a nation, which on farming, into an industrialized nation where manufacturing provides expert earnings.

On 6 June, Abiy warned of the risks: “”It is progressive. This new economic decision will afford us the opportunity to resolve widespread unemployment, ease foreign currency shortages, and reduce weaknesses in market connectivity. However, unless implemented with skill, knowledge and focus, it can lead to a repeat of the pervasive theft seen in many African countries and a destruction of Ethiopia’s wealth.”

Charlie Robertson, global chief economist at Renaissance Capital, told Reuters: “”The Government is still deeply sceptical about capitalism and speculative investors.”

OPINION – A well run stock exchange is vital in Ethiopia’s successful privatization and transformation

The capital market will bring many benefits to Ethiopians and the economy. A stock exchange enables enterprises to raise capital to create growth, jobs and fight poverty through issuing shares (equity) to long-term investors who are ready to share the business risks. It provides a transparent and efficient market for raising hundreds of millions of long-term debt, including bonds for housing and infrastructure, as in neighbouring Kenya. It would amplify efforts by Ethiopia’s Government and banks to finance the ongoing giant growth potential.

A regulated stock exchange encourages savings and help investors channel these into the most productive enterprises, boosting market size and efficiency. It boosts transparency by requiring companies to publish audited trading information promptly and widely, sharing similar information benefits with smaller investors as the Ethiopian Commodity Exchange (ECX) brings to farmers – any by encouraging professional analysts.

Individual Ethiopians are very keen for additional places to grow their savings, some of which are held in cash or low yielding bank deposits. Like other African countries, Ethiopia has fast growing domestic investment funds at pension and insurance institutions, and these need a much wider choice of productive assets to invest into, offering diversification and growth while seeking to maintain the overall safety of the members’ funds.

There are many Ethiopians both at home and abroad with the skills and character to ensure that any Ethiopian exchange will be one of the best and biggest in Africa. Although speculative trading is expected, it is also a key contributor to market liquidity and efficiency, and ensuring a large and active enough domestic base will counter much of the overall market volatility. Regulation is also needed to protect investors by ensuring that only well run businesses with a good track record and management can offer shares to the public, contrary to many unregulated initial public offers that have happened.

A well run stock exchange is what Ethiopia needs to transform its economy, boost participation, investment and the private sector, and to encourage efficiency and jobs.

DISCLOSURE – The author has worked on proposals on a stock exchange in Ethiopia, including when he worked at EY, and has studied the background and potential of the capital market there.

Addis Ababa (photo credit Horn Affairs)

Egypt is Africa’s new #1 investment destination

The challenge for African economies is to adapt to commodity slowdown and sluggish production growth. Many countries have suffered stress in the past three years, and the latest report from a leading investment bank suggests the new winners – and who is lagging. Rand Merchant Bank’s (RMB) Where to Invest in Africa 2018 report shows changes in the top investment destinations in Africa.

South Africa is off the top spot, edged aside by Egypt, and Nigeria and Algeria have crashed out of the top 10. The theme is “money talks” and focuses on major sources of dollar revenues, important income-generators and investment opportunities.

But the report compares 191 global jurisdictions and measures African against country groupings. African countries are still at the lower end of the global-performance spectrum, which is still dominated by the US, UK, Australia and Germany.

In Africa, according to the RMB press release, there is a new pharaoh in town: “Egypt (#1) displaced South Africa (#2) largely because of its superior economic activity score and sluggish growth rates in South Africa, which have deteriorated markedly over the past seven years. South Africa also faces mounting concerns over issues of institutional strength and governance though in South Africa’s favour are its currency, equity and capital markets which are still a cut above the rest, with many other African nations facing liquidity constraints.

“Morocco (#3) retained its third position for a third consecutive year having benefitted from a greatly enhanced operating environment since the Arab Spring which began in 2010. Surprisingly, Ethiopia (#4), a country dogged by socio-political instability, displaced Ghana (#5) to take fourth spot mostly because of its rapid economic growth, having brushed past Kenya as the largest economy in East Africa. Ghana’s slide to fifth position was mostly due to perceptions of worsening corruption and weaker economic freedom.

“Kenya (#6) holds firm in the top 10 at number six. Despite being surpassed by Ethiopia, investors are still attracted by Kenya’s diverse economic structure, pro-market policies and brisk consumer spending growth. A host of business-friendly reforms aimed at rooting out corruption and steady economic growth helped Tanzania (#7) climb by two places to number seven. Rwanda (#8) re-entered the top 10 having spent two years on the periphery, helped by being one of the fastest reforming economies in the world, high real growth rates and its continuing attempt to diversify its economy.

“At number nine, Tunisia (#9) has made great strides in advancing political transition while an improved business climate has been achieved by structural reforms, greater security and social stability. Cote d’Ivoire (#10) slipped two places to take up the tenth position. Although its business environment scoring is still relatively low, its government has made significant strides in inviting investment into the country leading to a strong increase in foreign direct investment over the years resulting in one of the fastest growing economies in Africa.

“For the first time, Nigeria (#13) does not feature in the top 10, with its short-term investment appeal having been eroded by recessionary conditions. Uganda is steadily closing in on the top 10 though market activity is likely to remain subdued after a tumultuous 2016 marred by election-related uncertainty, a debilitating drought and high commercial lending rates.

“Though Botswana, Mauritius and Namibia are widely rated as investment grade economies, they do not feature in the top 10 mostly because of the relatively small sizes of their markets – market size has been a key consideration in the report’s methodology.”

RMB Africa analysts spoke on economic trends:

Neville Mandimika: “The last three years have sounded an alarm, amplifying what is now a dire need for the economies of Africa to shift their focus from traditional sources of income to other viable alternatives.”

Celeste Fauconnier: “Over the past three years, some African governments have had to implement deep and painful budget cuts, announce multiple currency devaluations and adopt hawkish monetary policy stances – all as a result of a significant drop in traditional revenues.”

Nema Ramkhelawan-Bhana: “Some countries have been more nimble and effective than others in managing shortfalls,” says and an author of the report. “But major policy dilemmas have ensued, forcing governments to balance economically prudent solutions with what is politically palatable.”

Where to Invest in Africa 2018 also includes 191 jurisdictions around the world, and measures Africa’s performance relative to other country groupings. The report is available via: www.rmb.co.za/globalmarkets/where-to-invest-in-africa-2018-edition.

Ethiopian Commodity Exchange (ECX) CEO resigns

The CEO of the Ethiopian Commodity Exchange (ECX), Ermias Eshetu, has tendered his resignation, according to a report in Ethiopia’s English weekly newspaper The Reporter. He will stay until a successor is found.

His decision took people by surprise, as he was publicizing the new working procedures he was planning to introduce in ECX. The resignation came after a stringent evaluation by the Board, which lasted the whole day. “The evaluation dwelled on the performance of the trading floor (ECX) and on the issue of who should leave and who should remain in office. The CEO tendered his resignation letter in the wake of the in-depth evaluation,” sources told The Reporter. It is part of Government efforts “to identify the weaknesses of ECX and reform the organization”.

The ECX management declined to comment to The Reporter.

The ECX was founded by agricultural economist Eleni Gabre-Madhin in 2008. Ermias had joined the ECX in January 2015, taking over from Anteneh Abraham, former vice president of Abyssinia Bank, who had resigned due to illness.

Electronic trading on ECX began in July 2015 and by January 2017 had replaced 89% of the open outcry trading, using a bespoke software built by Ethiopian engineers. According to a news report, ECX had started commissioning e-trading centres in different regions, including 3 set to be operational in the second quarter of 2017 and 4 were to follow. In the 2015-16 fiscal year (to July), the exchange traded 632,000 metric tons of commodities, worth ETB23 bn. They trained 760 users.

Ermias, 42, previously served Zemen Bank as Vice President for Marketing and Corporate Services since 2007. He lived for 20 years in UK, gaining technical and leadership experience at firms such as global IT giants IBM, Alcatel, Orange and MicroStrategy. He has a Master’s degree in international business from University of Manchester Management Business School and a Bachelor’s with honours in Computation from University of Manchester Institute of Science and Technology.

Ermias Eshetu (photo from http://innovation-village.com)

Do African commodities exchanges achieve the desired results?

The Ethiopian Commodity Exchange (ECX) was set up with backing from the Ethiopian Government. In a very readable 2012 paper by the founder and first CEO Eleni Gabre-Madhin outlining the origins, aims and implementation of ECX, she mentions the Government backing in replacing laws so that trade in commodities including coffee (which makes up 35% of Ethiopia’s exports from 2000-2014), has to go through the exchange, and the determined resistance from those who had previously dominated the export trade.

Ethiopian Commodity Exchange (photo from http://africabusinesscommunities.com)

She mentions funding: “Five initial donors — the US Agency for International Development, the Canadian International Development Agency, the World Bank, the International Fund for Agricultural Development, and the United Nations Development Programme — committed US$9.2 million in just two weeks. This figure grew over the years as commitments increased. The World Food Programme and the European Union joined the list, and donor funding eventually reached US$29 million.” Bill & Melinda Gates Foundation is mentioned in later articles as a donor.

Since the early days of ECX, payment has been guaranteed the day after purchase and there is a proud record of zero defaults (as on nearly all regulated exchanges worldwide). This is a big change on earlier problems faced by farmers and others with many buyers reneging on contracts. In addition Eleni’s aimed that the exchange should transform agricultural marketing countrywide, and she oversaw the construction of a host of modern regional warehouses and transport.

On the negative side, a news report in January 2017 in local The Reporter newspaper mentions ECX users reporting problems including increasing contraband and quality compromises by bribing the “cuppers” who grade the commodities.

A study by the International Food Policy Research Institute (IFPRI) in May 2017 suggests that with regard to coffee, the ECX had not brought enough transformation: “Before the establishment of the ECX, Ethiopia had a fairly well-functioning coffee auction floor in Addis Ababa… Second, the strict regulations that the ECX has introduced into the country’s coffee market have resulted in higher transaction costs. These costs could potentially cancel out the benefits of some of the ECX’s innovations, such as electronic payment systems. Finally, the Ethiopian coffee sector continues to face some inherent challenges that are not affected by the ECX—namely, weak infrastructure and low productivity”.

In February 2017 The Economist published an article about African commodity exchanges dubbing them “high tech, low impact”. It noted that ECX had not moved beyond spot trading since 2008 and futures contracts to help farmers manage price fluctuations are far behind the 5-year target.

The Economist verdict: “The Government made it viable by mandating that almost all trade in coffee and some other commodities go through the exchange. This might not be possible elsewhere. A monopoly imposed by fiat makes it more like a state marketing board than an exchange, says Thomas Jayne, an economist at Michigan State University.

“Another model might be the Agricultural Commodity Exchange for Africa in Malawi, which was set up privately in 2006 at the request of an association of smallholder farmers. But its volumes remain low. And its concentration on staple foods such as maize and soya leaves it vulnerable to the sort of government interventions that can sink exchanges. Trading in staples tends to be politically sensitive in times of food scarcity.

“Setting up national exchanges may be the wrong approach. The Johannesburg Stock Exchange plans to introduce a regional contract for Zambian white maize later this year. For lucrative export crops like coffee, well-established offshore exchanges may make more sense than starting from scratch at home. Better a functioning exchange somewhere else than a disappointing one on the doorstep.”

Ethiopian Commodity Exchange gets online trading platform

ECX buyers and sellers make deals. (Photo credit - John Humphrey. From www.globalisationanddevelopment.com)

ECX buyers and sellers make deals. (Photo credit – John Humphrey. From www.globalisationanddevelopment.com)


The Ethiopian Commodity Exchange (ECX) has unveiled an online trading platform that has capacity for nearly 5,000 times more transactions than its current “open outcry”. Since the ECX was started in 2008 trading has been done on a trading floor in its Addis Ababa headquarters by dealers trading directly with each other, and about 200 transactions a day could be done.
Initially, dealers using the eTRADE Platform would be based at the ECX HQ’s trading centre. However, eventually market players will be able to trade electronically from anywhere. The platform will be gradually rolled out to newly built ECX trading centres in regional cities Hawassa, Humera, Nekemte and, in the near future, an additional 4 centres. The ECX has trained and certified more than 445 ECX trading members and representatives who are qualified to trade on the platform.
The trading platform has been under construction for the past 2 years and was developed in-house at the ECX. It was unveiled on 8 October and, on launch day, a record $400,000 of coffee was traded according to this news release.
A test run was done on 20 July with trading in local washed and unwashed byproduct coffee. ECX says 2,390 metric tonnes of farm produce has been traded on the platform so far with a trade value of ETB 120 million (about $5.7m).
ECX chief executive officer Ermias Eshetu said: “The inauguration of this eTRADE platform sets a new course for Ethiopia and brings with it unparalleled economic and social benefits. The platform inevitably breaks the physical and time barrier of the current open-outcry trading platform and provides the ECX with vital economies-of-scale to trade a number of additional new commodities.”

Transforming life for small farmers
The Investment Climate Facility for Africa (ICF) and other partners have been supporting the programme, according to this news release. William Asiko, CEO of ICF, said the platform would bring a revolution to Ethiopia’s agriculture sector: “The modernization of ECX will help to improve the business environment for stakeholders involved in the commodities sector and give Ethiopian agricultural products a competitive advantage.
“But for farmers, this modernization will be life-changing. It will enable farmers to get better pricing for their produce, thereby creating a more equitable distribution of wealth that has far-reaching social implications.”
The ECX was founded with the aim of improving agricultural marketing – a large part of its success is due to the large network of warehouses, quality controls and logistics up and down the country, and its main aim is to empower smallholder farmers, including through better information about prices. The current Government 5-year Growth and Transformation Plan II, launched from July 2015, sees state-run ECX serving 24 “agro-centres” with increased storage and warehousing facilities and better transport links.
Ermias, who became CEO in January after coming from Zemen Bank, said in April that the Government is establishing an enterprise to oversee the upgrading of warehousing, which will rely on a mixture of public and private capital. Donors including the World Bank and Bill & Melinda Gates Foundation are considering supporting what will require “huge investment,” he said.
One key tool for ECX has been its short message service (SMS) and interactive voice response (IVR) notifications of market data to farmers and others. This was introduced in 2011 in Amharic and English and gives real-time access to commodity prices. The SMS service processes 800,000 transactions a month and the IVR handles 1m calls a month, according to the news release. An upgrade was unveiled on 8 October which expands to Oromiffa and Tigrinya languages and introduces menu-based services (USSD) and new interfaces.

ECX mulls trading securities
Earlier this year it was also considering whether it could trade securities, including stocks and bonds, as part of its 5-year expansion plan. Ermias told Bloomberg in April: “We want to be a marketplace for any kind of stock, be it derivatives, agricultural commodities, financial instruments. That’s the ultimate vision.” He added that formal discussions have not yet begun on trading securities.
“With the two components, logistics and scalability, we will be able to introduce multiple commodities to the market,” he said. “ECX must offer the truly transparent marketplace for anything that’s going on in the Ethiopian economy.”
He said the market could move from coffee and sesame seeds, which account for more than 90% of volumes and are the two biggest generators of foreign exchange in Ethiopia, to sugar and grains such as corn and then add equities, government debt, power and metals.
Bloomberg cites Yohannes Assefa, the director of Stalwart Management Consultancy, a Dubai-based group working on Kenyan and Tanzanian exchanges, saying that ECX has capacity to expand beyond agricultural commodities within 12 months: “The existing platform is robust and the regulatory system is mature and well managed.”
The main problem would be changing government regulations, and Yohannes warned this “may require serious internal consultation before a change of policy.”

Exporters want futures
Bloomberg adds that coffee exporters such as Fekade Mamo, general manager of Addis Ababa-based Mochaland Import and Export, criticize the ECX for not allowing futures trading to hedge positions in a volatile global market. Ermias said it would take more than a year to build necessary steps for this, including insurance options for farmers in case they can’t deliver, better access to credit and the strengthening of the legal system.
Donors including USAID and the United Nations have supported the ECX when it was launched in order to boost efficiency of food markets in a nation where millions regularly went hungry. It had strong support from the Government, which decreed that exporters of coffee – Ethiopia is Africa’s biggest producer – must buy from traders on the bourse before they can export and within a year the ECX was the main route for coffee exports.
In 2014 it traded ETB 26.2 billion birr ($1.3bn) worth of goods.

ETB 1.6m for trading seat
In May the 17th trading seat was auctioned and won by an individual, Abayneh Zerfu, who bid ETB 1.6m ($76,000), according to this story in Addis Fortune newspaper, which said there were 4 bids. The ECX manages the bid if a member sells his or her seat and they are only allowed to do this after trading for 3 years and meeting requirements. Yohannes Hamereselassie, member development specialist at the ECX, said the original price for a seat was ETB301,000.

The new e-trade facility (credit ICF Africa)

The new e-TRADE facility (credit ICF Africa)


The ECX developers of the eTRADE platform (credit ICF Africa)

The ECX developers of the eTRADE platform (credit ICF Africa)

Why do Africa’s commodity exchanges fail and why do donors love them?

Commodity exchange trading floors have failed in in Zambia, Uganda, Nigeria, Zimbabwe, and Kenya. However, this has not deterred donors, according to a recent article on Bloomberg, and at least 8 commodity exchanges started in sub-Saharan Africa over the past 20 years with the aim of improving food security for local populations.
Exchanges are a distraction from other initiatives that would better serve poor farmers, Nicholas Sitko, a Michigan State University agricultural economist who’s based in Zambia, where a commodity exchange closed in 2012, is reported as saying: “We’ve learned that no amount of money pumped into them and no amount of government effort to get them off the ground can force them to work,” he says.

Attracting donors
Why were donors attracted to commodity exchanges, which analysts said suffered from the same flaw: a top-down approach that’s better at attracting foreign aid than at improving farming practices and developing transportation and communications networks. Donors like exchanges because they look like institutions in their own countries, says Peter Robbins, a former commodities trader in London who’s studied African exchanges. And “African leaders like to show off trading floors to show how modern their countries have become,” he says.
Even the famous Ethiopia Commodity Exchange, started in 2008 with the help of foreign donors including US and United Nations to improve food distribution in a country where millions often went hungry, has not proved as effective as desired. This is despite strong Government backing, including decrees that almost all buying and selling of coffee, sesame seeds, and navy beans for export must take place on the exchange.
According to Bloomberg: “With its buyers and sellers in coloured jackets and open-outcry trading floor displaying real-time market data from around the world, the ECX has been a prime example of what an exchange can and can’t do. The government ordered export coffee trading onto the exchange shortly after it opened, hoping it would jump-start activity and help attract other business. That didn’t work: Small amounts of corn and wheat are traded, but coffee and sesame seeds account for about 90% of exchange volume.

Enough warehouses
“Eleni Gabre-Madhin, who founded the ECX and served as its first director, says one obstacle for the exchange was that the state didn’t build enough warehouses to store bulky items such as cereals.” ECX Chief Executive Officer Ermias Eshetu said ECX will re-strategize from the bottom up in the Government’s next 5-year Growth and Transformation Plan II starting in July so that it can handle staple foods and is now allowed to license private warehouse operators to expand storage capacity.
Fekade Mamo, general manager of Mochaland Import and Export and a former ECX board member, was reported saying that Ethiopia’s fragmented, barter-based agricultural economy would have to modernize before it can benefit from a Western-style commodity exchange, according to: “The objective was to bring about an equitable food supply system.. That has completely failed.”
On the positive side, founder Eleni says farmers who use the exchange have seen benefits: Posting prices publicly has boosted their income, and centralized trading means buyers don’t default on contracts. Gary Robbins (no relation to Peter), chief of the economic growth and transformation office at the U.S. Agency for International Development in Addis Ababa, says commodity exchanges can encourage a consistently higher crop quality, a key condition for global trade, says. ECX
Eleni left the ECX in 2012 and has been working with investors, including International Finance Corp.—an arm of the World Bank—and Bob Geldof’s 8 Miles private equity fund, to establish an exchange in Ghana. Next she hopes to help set up one in Cameroon.
Shahidur Rashid, a food-security analyst with the International Food Policy Research Institute in Washington, says the problem is that conditions for success, such as large trading volumes, a strong financial sector, and a commitment to transparency, don’t yet exist in most countries: “A new institution should add value, and I struggle to find that value,” Rashid says. “Every country does not need an exchange. Nor is it any good to establish them in places where they will fail.” But he also says that under the right circumstances, exchanges can make sense.

Insights of private equity in Ethiopia – Schulze Global Investments

Schulze Global Investments is the longest-established private equity firm in Ethiopia. It is run by a family office and is extremely well networked. It has made several deals, but apparently no exits yet although prospects are improving.
SGI Ethiopia has also not been much in the media. In this interview, Dinfin Mulupi of HowWeMadeItinAfrica.com interviews Blen Abebe, vice president at SGI Ethiopia, who highlights the importance of a local team for successful private equity. For the full story, have a look at the original interview here.

Blen Abebe (photo reprinted from HowWeMadeItinAfrica)

Blen Abebe (photo reprinted from HowWeMadeItinAfrica)

So how has SGI been able to navigate this unique environment?

At Schulze Global, most staff are Ethiopian-Americans and the fact that you look Ethiopian and speak the native language ensures the locals can relate to us. For example, we have closed deals partly because we were on the ground and could relate better to locals than other private equity firms. And it makes sense, because most family businesses have been passed down through generations so they wouldn’t necessarily trust, or be willing to work with, you before they get to know you. That is why Schulze Global ensures it has people who know both the foreign and local culture.

What are some of the challenges SGI faces in Ethiopia?

Well, being the first one on the ground can have both positive and negative effects. For example, when Schulze Global opened its office back in 2008 most people had never heard of private equity. So we literally had to go through a teaching process of what it was we are doing. And to add to that, most companies confuse us with a bank so we must almost always explain the difference between a private equity firm and a bank.

After they understand the private equity structure, then the next challenge is agreeing to the terms that are in the term sheet.

Do you see in the future any likelihood of an exit?
We haven’t done any exits yet, but the future looks positive as we are seeing many entrants into the market. Therefore an exit via a strategic buyer should be attainable.

With more private equity funds coming in, how will things play out?
Competition is definitely increasing. We see it already. In fact, in one deal we are currently looking at, the sponsor is telling us they are also being courted by another fund. But our strength has always been that we have been in Ethiopia the longest, so we know what works and what doesn’t. And that long presence, even a small thing like knowing where our office is and the fact that they can visit us anytime, gives the local sponsors comfort – and at the same time gives us some leverage compared with other funds using the “fly-in and fly-out” model.

“Africa’s largest” Helios III private equity fund to close at $1.1bn

Leading African private investment firm Helios Investment Partners says it is about to close its 3rd Africa-focused private equity fund at the $1.1 billion limit. The firm said yesterday (12 Jan) it had already passed its $1bn target. Helios Investors III L.P. fund will “acquire and build market-leading, diversified platform companies, operating in the core economic sectors of the key African countries, with an emphasis on portfolio operations as a creator of value”, according to a press release.

The company says Africa’s attraction to investors stems from growth driven by factors specific to the continent, including economic liberalization, technology driving increasing productivity, demographic dynamics and urbanization. The Financial Times describes it as “the first $1bn-plus Africa-focused private equity fund.”

Tope Lawani, co-founder and Managing Partner of Helios Investment Partners, commented in the press release: “Much has been made of the rise of the African consumer, and that does, from time to time, give rise to potential investment opportunities. However, as discretionary incomes remain low and the cost of basic goods and services is high, Helios believes that addressing the supply side of the economy is generally more attractive.

“Helios’ strategy focuses on investing in businesses that lead the provision of core economic infrastructure: de-bottlenecking the economy; increasing efficiencies; and reducing living costs for households and operating costs for businesses.”

Economic woes bring buying opportunities
According to the Financial Times, many countries’ economic prospects are troubled by falling commodity prices. Increased interest rates in US cause capital flows out of developing markets. In an interview Mr Lawani told the paper that in the near term many African countries were going to suffer an “adverse impact” on their currencies as capital flew back to the US: “We are witnessing sharply lower commodities prices and it is reasonable to expect African currencies to lose value against the dollar,” he said.

He claimed that the downturn would turn into an opportunity for investors holding large amounts of US dollars, such as Helios. “It is an excellent time to invest: asset values are going to come down.”

From Helios Investment Partners website

From Helios Investment Partners website

Investor appetite matures
The company says that over 60% of the new capital committed comes from their existing investors, and other leading global institutional investors have joined them. The investor base for Helios III includes sovereign wealth funds (SWF), corporate and public pension funds, endowments and foundations, funds of funds, family offices and development finance institutions across the US, Europe, Asia and Africa.

Helios investment team is supported by Helios’ dedicated Portfolio Operations Group, based in Lagos and Nairobi, who work in active partnership with portfolio company management to create value within the firm’s portfolio by driving operational improvements. Helios has already made one investment through Helios III, acquiring an interest in ARM Pensions, Nigeria’s largest independent pension fund manager with over $2.2bn of pension assets under management. It has built a robust pipeline of proprietary opportunities.

Dabney Tonelli, Investor Relations Partner of Helios Investment Partners, commented: “Achieving, and exceeding, our fundraising target for Helios III underscores the global demand for experienced, institutional, Africa-focused private equity specialists and the strength of the relationships we have built with the world’s leading private equity investors.”

Helios was established in 2004 by Nigerian-born Tope Lawani and Babatunde Soyoye. It raised the previous record for Africa’s biggest private equity fund at $908m in 2011. Through various investment types, such as business formations, business formations, growth equity investments, structured investments in listed entities and large scale leveraged acquisitions across Africa, it has aggregated more than $2.7bn in cpapital commitments, according to its website.

The Financial Times adds: “Africa still attracts a tiny proportion of the world’s private equity money, even compared with other emerging regions, notably Asia and Latin America. But interest has increased recently, buoyed by strong economic growth. After stagnating for two decades, African gross domestic product per capita has surged almost 40% since 2002, fuelled by high commodity prices, the rise of a small consumer class, and cheap Chinese loans.”

Africa deals
It says that buyout groups raised $3.3bn for Africa funds in 2013, down from a peak of $4.7bn in 2007.

The FT points to US buyout private equity firms Carlyle’s $698m fund and regional deals by KKR (which invested $200m in a Afriflora, an Ethiopian exporter of roses, in June 2014 from its $6bn European fund according to this Wall Street Journal story and a KKR press release) and Blackstone. In June 2014 Edmond de Rothschild amassed $530m for its first private equity fund focusing on deals in Africa, managed by Amethis, majority-owned by the Swiss private banking group and founded by Luc Rigouzzo and Laurent Demey, two former top executives at French development financial institution Proparco. There has also been increased multinational deal-making, including French insurer Axa entering Nigeria, an alliance between SAB Miller and Coca Cola, and a merger in South Africa’s retail sector.