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DEVELOPMENT/ FINANCE
A high level meeting, chaired by Sufian Ahmed,
minister of Finance and Economic Development (MoFED),
was held on Monday morning, January 18, 2010, inside
the meeting hall, on the eighth floor of the
ministry, on King George Street (near Sidist Kilo).
The meeting was attended by close to 30 participants
from the state finance sector, including Teklewold
Atnafu, governor of the central bank, Abay Tsehaye,
Melaku Fenta, and Muktar Kedir, board chairmen for
Commercial Bank of Ethiopia (CBE), Development Bank
of Ethiopia (DBE), and the Ethiopian Insurance
Corporation (EIC), respectively. Sufian called this
meeting to deliberate on the prospect of state owned
financial institutions to play a role in the
development and implementation of the Plan for
Accelerated and Sustained Development to End Poverty
(PASDEP) his ministry is currently authoring, which
is the third edition since the mid 1990s.
There was a debate at this meeting on the degree of
the finance institutions’ contributions to the
success of the previous programmes. In sharp
contrast to the official view of the senior members
of the macroeconomic team, managers of the CBE have
argued that their pumping billions of Birr over the
past five years in providing three billion Birr in
short term loans for small and medium businesses to
acquire 1,000 trucks, 700 loaders and crushers; as
well as billions of Birr issuing bonds to regional
states in their condo construction projects were
significant contributions.
Nevertheless, whether or not PASDEP II was a success
is an ongoing affair and it is too early too
celebrate, according to those who have been
following the progress of the programme. Its final
evaluation has yet to be completed, for the
programme is yet to expire in June 2010, after five
years on the show. The programme was projected to
have consumed 239.5 billion Br.
The federal government, with the stewardship of
Sufian and his experts at the MoFED, has launched a
vast consultation process in the development of the
latest edition. Such consultations have taken place
with delegates of 175 federal government officials
over the past one month. One of these consultation
meetings
was with presidents from all regional states, and
mayors of the two chartered cities (Addis Abeba and
Dire Dawa), senior officials from several civil
service agencies as well as from revenues and
finance bureaus: It was held in Sodere, on December
20, 2009.
These consultation forums are scheduled to be
concluded on February 8, 2010, Haji Hibssa, public
relations head of MoFED, told Fortune.
Last week’s meeting with leaders and managers of
state owned financial institutions was a play along
this tune. But senior federal government officials
such as Sufian were unhappy with what he said was
insignificant contribution of the state financial
institutions during the implementation of PASDEP II;
Governor Teklewold was observed to be strongly
critical of weak mobilisation of deposits from the
public, reliable sources disclosed to
Fortune.
In particular, he was not happy with the performance
of the DBE over the past few years in providing
crucial finance to key public projects.
There appears to be a general consensus during the
meeting on the declining trend of deposit
mobilisation by state banks. However, managers of
the state banks attributed this to the increasing
market shares of the private banks, low interest
rate (four per cent on deposit), high cost of
deposit mobilization and the emerging opportunities
for depositors who would rather invest their money
in the mushrooming public share offerings, at least
23 projects.
More importantly though, federal government’s policy
of fighting inflationary pressure in the economy, by
imposing caps on lending that caused massive credit
crunch, has led to a slowdown on national savings,
macroeconomic analysts told Fortune.
Indeed, both CBE and DBE are in a very crucial time
of their corporate life, as
Fortune
learned. They are not as liquid as they may appear
to be, a senior federal government official told
Fortune.
CBE, for instance, illustrates an unprecedented
showcase.
Its recent move in providing long term commitments,
against its very nature, after issuing bonds to
regional states, including Addis Abeba, to finance
the construction of public condominium houses, tied
up the significant portion of its loans and
advances: Up until December 2009, its long term
commitment has reached 25 billion Br, over its short
and medium term lendings, which was 19 billion Br,
Fortune ascertained.
Its commitments to cover letters of credit on
foreign trade have jumped from eight billion Birr in
2008, to close to 12 billion Br during the first
half of the current Ethiopian fiscal year.
Yet, it has not been able to raise sufficient funds
to finance these long term investments. From the
total of 50 billion Br in deposit, CBE has only 18
billion Br in saving deposit,
Fortune
found.
“Deposits are declining due to the fact that loans
to private individuals and businesses are
plummeting,” said a financial analyst, who demanded
anonymity due to the sensitivity of the issue.
DBE, which is not allowed to mobilise savings from
the public but borrows from CBE and other
international finance organisations, finds itself in
a far critical situation than CBE, reliable sources
disclosed.
DBE’s total commitments of loans and advances have
reportedly reached four billion Birr, including one
billion Birr for the expansion projects of Dashen
Brewery, and additional one billion Birr for the
textile plants by two Turkish companies, AYAK and
ELSE.
During the last fiscal year, it has borrowed 1.2
billion Br from the CBE, disbursing all but 500
million Br. In contrast, its loan recovery record
for the first six months of the current Ethiopian
fiscal year was at 900 million Br, reliable sources
disclosed to Fortune.
“It is very frustrating that we are tied up because
nothing seems to come out of DBE”, a businessman who
owns a tannery under expansion told Fortune.
“Almost every company in the leather and tannery
industry suffers from lack of financing.”
Managers of cash-strapped DBE have recently
requested the central bank for recapitalisation of
the DBE with new injection of at least 1.4 billion
Br, although other sources claim the amount for
recapitalisation is as high as two billion Br.
If granted positive response, this means that DBE
will recapitalise itself for the third time since
the early 1990s, raising alarm among analysts that
the government is taxing the public in order to
maintain a bank that is not adept enough to keep
itself afloat.
Part of the concern is also that should this amount
be released in one go, the trickle effect on the
economy will become inflationary, which the
government takes pride in controlling. But its
critics argue that its achievement in taming
inflation has been at the cost of the growth
prospect of the private sector.
Federal government officials are now contemplating
to address this critical issue by readjusting
interest rates on deposits, in a bid to help CBE,
primarily, recover its costs in mobilising deposits
through its branches numbering more than 270 - the
largest network in the country. With DBE though, in
additional to recapitalising it, they may also allow
to enter into the market, raising its own funds from
mobilisation of deposits from the public.
Whatever the case, Sufian wants to see a much larger
role for the state finance institutions in partly
greasing the huge bill of his next programme, whose
cost, experts project, may escalate to half a
trillion Birr. |
Government may readjust interest rate on deposit
