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The Cabinet of the
Addis Abeba Caretaker Administration, whose mandate
was extended by Parliament for another year in
September 2007, is to issue a bond in order to
finance the constructions of condominiums in the
capital. The city is to sell a one billion Birr bond
to the state-owned Commercial Bank of Ethiopia (CBE),
to be paid back in three years, with four per cent
interest, sources disclosed to
Fortune.
It is the first time an administration of the Addis
Abeba City Government will issue a bond. A growing
budget deficit and the Administration’s poor
performance in collecting targeted revenues pushed
the Cabinet to scout for sources of finance.
The Administration collected less than half of the
5.2 billion Br revenues it had planned for the
2006/07 fiscal year. Neither is the trend for the
current fiscal year, during which the Administration
hopes to collect 6.4 billion Br, promising; it has
collected only 760.32 million Br of the 1.5 billion
Br it planned for the first quarter.
“Banks are liquid,” said Alemseged Assefa, vice
governor of the National Bank of Ethiopia (NBE),
told Fortune. “The city generating revenues
from issuing bonds to commercial banks in order to
finance capital expenditures stimulates businesses.”
Bonds, often known as sovereign debts, are loans
that are offered in the form of securities. Bonds
enable the issuer to finance long-term investments,
with a limited payback period up to 10 years.
Critics say the Caretaker Administration run by
Mayor Brehane Deressa is entering into a commitment
that will extend to other administrations that come
after it.
It took close to 10 months to finalise the
negotiations, disclosed a senior official at the
City Administration.
“We have reached an understanding,” a senior
management board member told Fortune. “It is
a good deal for us.”
The agreement is expected to be signed in three
weeks between Mayor Brehane and Abie Sanu, president
of CBE. The city plans to pay the bond after
transferring condos to their owners.
“Yes, borrowing involves some degree of risk,” said
an official from the city’s Bureau of Economy and
Finance. “But, we cannot compromise the construction
of condominium houses.”
Addis Abeba is part of a grand project designed by
the federal government to develop low cost condos
that not only relieve severe housing shortages in
urban centres; the federal government strongly
believes during the construction phase they also
generate employment and business to small and medium
size companies.
In April 2007, the Cabinet approved its five-year
strategic plan, which will cost 38.7 billion Br;
15.1 billion Br of this is allotted for good
governance, and nearly 12 billion Br for the
expansion of infrastructure such as housing. The
city plans to construct 38,500 condos this year at a
projected cost of two billion Birr, half of which is
to be financed from its own treasury. |
Critics See Caretaker Administration Putting Next Government
into Commitment