Archive for the 'Ethiopia' Category
March 25th, 2010 by Tom Minney
Ethiopia may soon have corporate bonds, paving the way to a bond market, according to a press conference last week by Prime Minister Meles Zenawi. According to a report in the respected Fortune (www.addisfortune.com) weekly newspaper, the Prime Minister told media on 18 March that state-owned enterprises would start issuing bonds within weeks.
State enterprises such as the Ethiopian Electrical Power Company (EEPCO), the Ethiopian Telecommunications Corporation, Ethiopian Shipping Lines and Ethiopian Petroleum Enterprise are to offer bonds with nominal values of over Birr 100 million (US$7.4 million) and the interest rates could be higher than bank deposit rates. The proposal was tabled by authorities at the central National Bank of Ethiopia (www.nbe.gov.et) and is hoped to spur competition in the banking sector, according to its proponents.
Prime Minister Meles Zenawi is quoted by editor Tamrat Giorgis as saying: “Priority was given to controlling inflation, not in checking real interest rates [on deposits].” Inflation was very high in the past but was now down to 8%.
Tamrat wrote: “With inflation driven to record high double-digit figures last year and borrowers accessing money from the banks on negative real interest rates, savers are believed to be on the losing end. Banks hardly pay over 4% interest on deposits. This is the minimum bank deposit rate imposed by the central bank, although commercial banks are allowed to pay higher than that. On the other hand, commercial banks in the country charge as high as 16% interest on their advances and loans.
“Macroeconomic policymakers in the Federal Government have not been much concerned with the impact of this imbalance due to a negative real interest rate, which could discourage national savings. Their priority was, however, laid in keeping inflation at bay.
“Now inflation is down to a single digit (8%), the Federal Government is contemplating pushing real interest rates on lending to the positive, pressuring banks to create a competitive market. Even when the Federal Government cut down on its domestic borrowing in order to ease the cap imposed on banks so that they lend more following a robust performance of tax collections this year, the banks remained paying the minimum interest rate on deposits.”
He cites some commentators who warn that the high value of the bonds mean they are unlikely to have much impact on the retail market and only a few will be able to invest in them.
Last Sunday Capital newspaper (www.capitalethiopia.com) reported that experts of Ethiopia’s Ministry of Finance and Economic Development, the World Bank and the International Monetary Fund were meeting in Addis Ababa to discuss mechanisms for a regular fortnightly auction of treasury bills in a bid to regulate the money supply.
COMMENTARY FROM AFRICAN CAPITAL MARKETS NEWS:
Research by local investment house Access Capital www.accesscapitalsc.com the year average inflation rate peaked at 46% in February 2009 and year-on-year inflation at 64% in July 2008. The rate since fell quickly, as predicted accurately by the Access Capital report.
The debt market in Ethiopia has long been limited to Treasury Bills and some exchanges between banks. Recently there were only 28‐day, 91 day and 182‐day Treasury Bills available and the yield is described as “minimal”, reflecting the lack of investment alternatives. (Unfortunately the NBE website appears to be out of order to give present statistics).
A few years ago, when this author discussed issuing bonds with one local parastatal with massive multi-billion investment programmes, they said this was a good idea but it turned out more advantageous to finance their with loans including at low interest rates from the Government-owned Commercial Bank of Ethiopia (CBE).
According to the national Plan for Accelerated and Sustained Development to End Poverty (PASDEP) 2005/6-2009/10: “Regarding future plans on the development of capital markets, the pre-conditions that are critical for the establishment of capital market are not yet ready. The accounting and auditing practices are rudimentary in Ethiopia, and the minimum requirements to establish effective supervisory and regulatory institutions are not yet well in place. It is therefore, believed that the establishment of a corporate bond market which involves less risk both to participants of the market and the stability of the business environment should come first. The latter will help create some of the necessary conditions for the establishment of a capital market. To this end, the NBE has conducted a study on the feasibility of establishing a corporate bond market in Ethiopia and follow up studies are planned to be undertaken in 2006/07.”
The NBE underwrote the the EEPCO Millennium Bond, a first diaspora bond issued in 2008 just after the year 2000 in the Ethiopian calendar, by the state-owned power company and marketed by CBE, making the Government the borrower. Interest rates were set at 4%, 4.5% and 5% respectively for 5, 7 and 10 years bonds. The nominal was US$ 100 and minimum investment $500 or its equivalent in selected convertible currencies. Eligible investors are holders of the Ethiopian passport who are residents outside of Ethiopia, and citizens of foreign countries who can trace their origin back to Ethiopia.
Some work would be needed to develop a efficient bond market, and it could take some time.
March 13th, 2010 by Tom Minney
The Nairobi Stock Exchange (www.nse.co.ke) has set mid-2010 as the target to launch a commodities exchange. It will be a joint effort by the National Cereals Produce Board (www.ncpb.co.ke), the Kenya Agricultural Commodities Exchange (www.kacekenya.com), Eastern African Grain Council (www.eagc.org) and NSE.
The exchange aims to protect farmers against price turbulence, including seasonal variations in prices for farm produce that diminish earnings and cause tonnes of produce to go to waste. The trading platform will feature futures contracts on commodities, whether in stores or in the fields, so that a farmer can sell his produce ahead, locking in a specific price. Her or his responsibility is then to deliver the produce to the required quality and quantity on time. It also reduces the role of middlemen who buy commodities low during the market gluts often seen in harvest season.
According to a report in Business Daily newspaper (www.businessdailyafrica.com), Dr Adrian Mukhebi, the KACE chairman, says: “The plan is at an advanced stage and the market should open before June this year.” Deloitte & Touche is searching for two senior managers who will act as the link between NCPB and the commodities exchange. This is part of a restructuring proposal for NCPB that splits its commercial wing from the strategic reserve function as well as the establishment of the commodities exchange.
NCPB will use its silos and warehouses to store produce earmarked for trading at the commodities exchange.
“The market will initially trade major grains produced in East Africa, including maize, wheat, rice and beans but will ultimately trade other agricultural commodities, including inputs such as fertilizers and seeds,” said Dr Mukhebi.
The paper also quotes some sceptics, who say the policy framework is not ready and the project is being rushed after the great success of the nextdoor Ethiopian Commodity Exchange (www.ecx.com.et). It cites Mr Daniel Mbithi, the secretary of the Kenya Coffee Planters and Traders (KCPT) association which runs Nairobi Coffee Exchange: “We do not have the necessary legal framework for this market. The current sense of urgency is merely the product of recent reports that a similar market has been established in neighbouring Ethiopia,” he said.
Legal and regulatory frameworks could include a Commodities Exchange Act and a Warehouse Receipts Act, as well as investments in infrastructure such as roads and in NCPB facilities to fit them with modern equipment like sievers and driers to enable hold grains for longer periods.
Dr Mukhebi, however, said the commodities exchange would be regional in outlook and would benefit farmers from Kenya, Tanzania, Uganda, Rwanda and Burundi. “We have also partnered with the EAC Secretariat to catalyse the establishment of a harmonised legal and regulatory framework for the exchange in the region.”
In 2008, the Eastern Africa Grain Council, in partnership with NCPB and Lesiolo Grain Handlers set up a pilot maize receipt warehousing in Nakuru but the project funded by Equity Bank has performed below expectation due to prolonged drought and government price controls. However, Government reportedly increased the price it offered beyond the price offered at Lesiolo and the initiative died.
February 25th, 2010 by Tom Minney
The Ethiopian Commodity Exchange (www.ecx.com.et) was to host a consultative meeting of representatives from different African commodity exchanges this week on 25 February to form the African Commodity Exchanges Association. The CEO of the ECX, Dr Eleni Gabre-Madhin, was reported to have told a press conference in Addis Ababa that Ethiopia could offer to host the secretariat for the association. United States Agency for International Development (www.usaid.gov) sponsored the gathering.
The idea was first brought up at a United Nations Conference on Trade and Development (www.unctad.org) forum in Lusaka in September 2009. Its theme was: “Improving the Functioning of Commodity Markets in Eastern and Southern Africa through Warehouse Receipt Systems and Market-based Interventions.”
The previous day, 24 February, was a daylong “knowledge forum” held with the United Nations Development Programme (www.undp.org). This would involve sharing experience, best practices and challenges of establishing and working with commodity exchanges in Africa.
Participants were to come from Ghana, Nigeria, Uganda, Zambia, Tanzania, Sudan and Zimbabwe. Executives of the National Derivatives and Commodities Exchange of India and the South African Futures Exchange are also expected to take part. ECX has recently hosted groups from Kenya, Zimbabwe, Sudan, Ghana and the Philippines to look at Ethiopia’s experience and see how it helped the market.
Takele Teshome, programme analyst on Food Security and Recovery at the UNDP, reportedly says UNDP is funding the ECX with $1.5 mln a year, since 2008.
Last week on 17 February the ECX launched Direct Specialty Trade (DST), a new platform where producers of specialty coffee can transact directly with international buyers seeking to purchase premium beans on a fully traceable basis. In a press release by the ECX, Dr. Eleni said by coordinating buyers and seller, DST adds value to farmers, who can benefit from greater competition and to buyers, who can discover truly special coffees.
DST also enables trade of certified coffees, such as Organic certified, Fair Trade, RainForest, among others. She said DST is established as a monthly bidding session in which small farmer cooperatives and commercial growers may deposit specialty grade coffees in advance in ECX warehouses A condition for participation in DST is that farmers will receive a minimum of 85% of the final export price, a historic first for Ethiopia’s coffee farmers who normally are believed to receive below 40%, among the lowest share of the final price in the world. DST is an innovative way to enable direct trade that is reliable, fully traceable, transparent, and sustainable.
According to the release, on the first day, 44 lots of specialty coffee that came for the first DST session, their sellers being 35 primary cooperatives and 9 commercial growers, while 27 registered international buyers, representing coffee importers and roasters in North America, Europe, and Japan came to buy the high-quality coffee. The lowest price given was $2.15 dollars while the highest went as high as $4.02, according to Fortune newspaper (www.addisfortune.com).
Dr. Eleni said international buyers pre-register for the DST session and are able to order samples and to participate in a cupping session prior to the bidding: “DST closes the real gap between farmers seeking to benefit from the international market and buyers interested in tracing these coffees to their origin. DST also raises the visibility and profile of all Ethiopian coffee, and thus is a clear win-win for all.”
January 19th, 2010 by Tom Minney
Agricultural private equity fund Agri-Vie (www.agrivie.com) will reach its target of raising $100 million for investment in agricultural projects by February or March, according to an interview with Reuters newsagency on 14 January. It says there is plenty of potential and plans a second fund of up to $300 million.
Earlier in January the fund, launched in March 2008, made 2 investments totalling $10 mln in 2 agricultural projects in Ethiopia and across the region, and it is close to finalizing a $4 mln investment in Tanzania.
Izak Strauss, executive director and chief investment officer, told Reuters they are also considering a second fund: “There is definitely an opportunity to do a second fund substantially larger than the first fund… probably (in the region of) $200 to $300 million.” This could launch in 2013 or 2014.
Agri-Vie, based in Cape Town, focuses on equity investments in a wide range of agribusiness in Sub-Saharan Africa, including processing and distribution. It is backed by the Development Bank of Southern Africa (www.dbsa.org) and private entities including W.K. Kellogg Foundation (www.wkkf.org).
Agriculture in Africa appears set for transformation from unproductive and undeveloped subsistence farming to more commercial farming as investors from Europe, Asia and the Middle East get large tracts of land and launch projects, often to tackle food insecurity in their own countries.
In the interview, Mr Strauss said Agri-Vie plans to invest up to $25 million into five new projects during 2010, including a new $4 million eco-tourism project in Tanzania.
Agri-Vie forecasts fast economic growth in East Africa, which it calls an “investment hotspot”.
He said Agri-Vie this month invested $6.7 million in New Forests Company (www.newforestscompany.com), a UK-based sustainable and socially responsible forestry company with established, rapidly growing plantations and prospects of diversified products for local and regional export markets. It has operations in Uganda as well as Tanzania, Rwanda and Mozambique. East Africa has been a net importer of sawn timber and electrical poles and NFC aims to replace these imports with locally-produced goods. NFC’s overall aim is to “deliver both attractive returns to investors and significant social and environmental benefits”, according to its website.
The company also invested $3.5 million in africaJUICE (www.africajuice.com), run by European and African entrepreneurs and establishing fruit production and processing operations to capture share in European and the Middle Eastern juice markets. The first farm is in Upper Awash in the Oromia region. africaJUICE claims the combination of ideal growing conditions in the area and Ethiopia’s closeness to target markets should help displace European companies’ reliance on importing fruit products from South America.
The company website says: “We plan to establish at least three production locations across Africa by 2014 and become a premier supplier of Fair Trade juice to the European market.”
Strauss said: “Its first operation is in Ethiopia, growing yellow passion fruit, mango and papaya… The first exports will happen from mid-this year.” africaJUICE is making a capital investment of some €12 million to rehabilitate and expand an existing state-owned fruit farm (“Tibila Farm”) to create a high-technology modern tropical fruit plantation and build a new processing facility, operating under Fair Trade principles.
According to africaJUICE’s website: “Our plan is to plant approximately 600 hectares of yellow passion fruit and 600 hectares of other tropical fruits such as mango and papaya over a period of four years. At the same time we will support the development of over 1,200 hectares of outgrowers (contract farmers) to supplement the supply and extend community participation. Our new fruit processing facility will produce pure juices, concentrates and purees which will be transported to market via established export routes.”
David O’Halloran, Director of africaJUICE, told African Capital Markets News: “Having started operations on the ground early in 2009, we are pleased with the progress so far on the new fruit plantings, infrastructure, operating approach and the processing plant and looking forward to juice production from mid-2010 onwards. We have also made substantial progress following our sustainable development philosophy with a number of initiatives underway or already executed and are excited that this new approach to development and investment is progressing well. We are also progressing well on the second and third projects and expect to be considering funding options for those in the coming 12-24 months”.
January 8th, 2010 by Tom Minney
The fast-growing Ethiopian Commodity Exchange (www.ecx.com.et) on 31 December sold 150 full membership seats for a total of Birr 34 million (US$2.7 million). The new members include 69 suppliers, 45 exporters, 24 local traders and 12 cooperatives and commercial farmers, according to Ethiopia’s Fortune newspaper (www.addisfortune.com).
Coffee exporter Muluneh Kaka made the highest bid, offering Birr 3.3 million for a seat.
A full membership seat gives individuals, companies, public enterprises, cooperative unions and commercial farmers the right to transact any commodity through the exchange. The membership seat is permanent and transferable and is the basis for the ECX to function. Whoever is a member, either full or limited, can trade through the ECX.
The seat sale was initially announced in September 2009 at the ECX annual member’s forum and the initial price was set at Birr 50,000, but there were not many takers. Dr Eleni Gabre-Madhin, CEO of the exchange, told the newspaper they decided to make the sale public, instead of selling only to the members, and interest blossomed: “The membership value has significantly increased… This shows us the value businesspeople give to be a member of the ECX. …Participants came with their own presumptive value for becoming a member.”
She said people who bought the seats will have to be trained by ECX and score at least 70% in a certification examination. Results will be known after two weeks and seats awarded to successful buyers.
There are two classifications of traders: full members can trade any commodities they like and limited members can only trade one commodity. In each classification there are trading members who can only trade on their own account and intermediary members who can trade either on their own account or on behalf of clients.
September 29th, 2009 by Tom Minney
Traders on the Ethiopian Commodity Exchange (ECX – www.ecx.com.et) will be able to use their stocks to access bank finance from January 2010. In the scheme, launched in June 2009 and discussed with stakeholders on 24 September, the ECX and the International Finance Corporation (IFC – www.ifc.org), a member of the World Bank Group, aim to introduce Warehouse Receipt financing for producers and traders to get bank loans by pledging receipts for commodities held in ECX warehouses.
Agriculture accounts for about half of Ethiopia’s economy (GDP), 60% of exports, and 80% of jobs, according to the IFC, but farmers and producers have difficulty accessing finance due to the type and level of collateral that banks require. Much of Ethiopia’s development strategy is oriented towards agriculture-led growth.
The ECX is seeking to transform agriculture by standardizing key crops and quality and using technology to distribute prices countrywide. Buyers and sellers trade on an open-outcry floor, and the exchange assures quality, delivery, and payment. By holding all crops in warehouses, ECX gives security by providing a secure and reliable end-to-end system for handling, grading, and storing commodities, matching offers and bids for commodity transactions, and a risk-free payment and goods delivery system to settle transactions, while serving all fairly and efficiently. The ECX receipts guarantee the quality, quantity, and security of produce deposited in its warehouses.
In June, the IFC announced that it would support ECX over the next 2 years to design financial instruments and advocate for any required regulatory and legal changes so that banks can accept warehouse receipts as collateral for loans. IFC and ECX will also work together to increase the capacity of banks to extend loans based on warehouse receipts. IFC is giving technical advisory services and financing.
ECX CEO, Dr. Eleni Z. Gabre-Madhin was quoted by a local paper (Daily Monitor) as saying in September that the plan would help farmers who previously did not have enough collateral, and would also cut the costs and risks of lending for banks and helps them tap into a huge unexploited credit market for short-term trade finance to farmers. Financing could help small producers well at better prices, grow their business and invest in infrastructure, including stores.
She is quoted: “The market is currently severely under-financed, with only 6% of traders able to secure formal trade finance and having to resort to unfavorable traditional moneylenders. Essentially, we are about to turn commodity into asset. We should be thinking that every Warehouse is, in reality, a bank branch.” Alemseged Assefa, Vice Governor of National Bank of Ethiopia, was quoted as saying: “The launching of this system has the potential to be nothing short of a revolution in our finance sector”.
The ECX was established by Proclamation in June 2007 and is authorized to trade in both spot and futures contracts, initially starting with spot contracts for immediate delivery. Live trading was launched on 24 April 2008.