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In the world of high finance, issuing stocks and
bonds is amongst the traditional and best
known methods of raising funds for capital
investment. Bonds are debt obligations entered into
by government entities to generate funds for capital
expenditure. Issuing bonds is a standard practice
for governments and cities both in the developed and
developing world.
Here in Ethiopia, the federal and some regional
governments are known to resort to issuing of bonds
to finance capital expenditure.
The Addis Abeba City Administration has launched its
first ever bond issue as a ground breaking borrowing
programme to raise one billion Birr from the
Commercial Bank of Ethiopia (CBE). The deal was
concluded on November 29, 2007. Bonds issued by the
City Administration will be used exclusively to
finance investment in ongoing and new housing
construction programmes initiated by the federal
government. Strict follow-up mechanisms will be
developed by the Finance and Economic Development
Bureau of the Administration to ensure that the
funds are used solely for the intended purpose.
The Administration considers the current bond issue
as the first step of a long-term financial
relationship with CBE. The fact that it has won the
confidence of CBE in its first ever bond issue shows
its financial buoyancy and credit worthiness. The
measure should encourage other municipalities to use
the scheme for financing infrastructure development,
thereby improving not only service delivery but also
stimulating the economy for sustainable urban
development, income generation, employment creation
and poverty alleviation.
Although the construction of housing is a nationwide
programme of the federal government, the city of
Addis Abeba accounts for the lion's share. The total
number of condominiums under construction in the
city at present is over 92,500 or some 60pc of
condominiums under construction nationwide. They
include backlogs of about 21,000 from 2004/05,
planned construction of 33,000 for 2005/06, and
38,500 planned for the current year.
The total investment cost is estimated at 2.2
billion Br, or a third of the city's budget. There
have been backlogs in programme implementation
because of disruptions in the aftermath of the
elections, the acute shortage of construction
materials experienced in recent years as well as the
scarcity of qualified contractors. But new
construction has also been initiated because of the
government's commitment to alleviate the acute
shortage of housing in the city.
Instead of lauding the measure taken by the City
Administration as a pioneering public borrowing
programme, your newspaper asserts that ". . .
Brehane Deressa's [Administration] is entering into
a commitment that will extend to other
administrations that come after it".
This does not surprise me because your newspaper has
consistently been casting the positive effort of the
City Administration in a negative light, no doubt
because of your "reliable sources" of information.
Implementation of development projects and
programmes usually take several years; debt
obligations entered into to finance them should not
therefore be expected to be limited to a single
administration. Likewise, the services provided by
the housing programme are not limited to the present
generations. They are intended to serve both present
and future generations.
Besides, the housing programme belongs to the
federal government which fully supports the
financing scheme; the task of the City
Administration is to implement it, even though the
task is Herculean by any standard.
Your newspaper further attributes the issuance of
bonds to ". . . a growing budget deficit and the
Administration's poor performance in collecting
targeted revenues [that] pushed the Cabinet to scout
for sources of finance".
This is far from the truth. The bonds are issued to
exclusively finance implementation of ongoing and
new housing development programmes embarked upon by
the federal government. The intention is not to
finance investments in infrastructure other than the
construction of condominiums.
Addis Abeba receives no subsidy from the federal
government. This is despite the fact that the
federal government is a major beneficiary of
services it provides. The city finances both
recurrent and capital expenditures from its own
revenues without deficit. Even though the collection
of revenues may have fallen short of target in the
past fiscal year, it has improved by 54pc during the
first quarter. The record shows an increase of 24pc
or about 200 million Br over the same period the
previous year.
This definitely shows that revenue collection during
the current fiscal year demonstrates a positive
trend, contrary to the assertion in your newspaper.
Addis Abeba is amongst the few cities of its stature
in the world that runs a balanced budget with no
support whatsoever from any quarter. I urge you to
look around the world and find any major city that
operates strictly within the confines of its own
resources. Addis Abeba should indeed be
congratulated!
I
would like to underscore that I am responding to
your newspaper not to take issue with you but to set
the record straight and inform your readers. I hope
you will in future include the Mayor's Office
amongst your "reliable sources" of information. |
