Awash Melkassa Chemical Factory struggles with sales despite stock surplus

Executives of the state-owned Awash Melkassa Chemical Factory say the manufacturer is struggling with client retention and an accumulation of product stock as more than 260 million birr’s worth of chemicals sit idle in its warehouses. Located on a 9,000 square meter plot 100 kilometers east of Addis Ababa, the Factory produces aluminum sulfate, hydrogen peroxide, and sulfuric acid compounds. It used to supply its products to textile and leather industries, paper and pulp factories, sugar estates, beverage manufacturers, and wastewater purification plants before business began to turn sour due to market disruptions. Executives say issues arising from the COVID-19 pandemic, foreign currency shortages, and competition from cheap imports have cast doubts over the Factory’s competency and financial viability. The problems were the center of discussion of a conference organized this week at Nexus Hotel. Ahmed Motuma, general manager at Awash Melkassa Chemical Factory, said the manufacturer was forced to cease production completely in 2021 as a result of lockdown measures during the pandemic. The Factory, which is an arm of the state-owned Chemical Industry Corporation, lost clients as a result. Ahmed observes a lack of access to foreign currency needed to import inputs has exacerbated the situation. Despite the resumption of production in 2022 after the government approved the company’s purchase of raw materials using Birr, business has yet to pick back up. “When we stopped the production of aluminum sulfate, hydrogen peroxide, and sulfuric acid chemicals, our regular customers went away, including the Addis Ababa Water and Sewerage Authority. Even though we immediately restarted production, we couldn’t retain the clients,” said the General Manager. Ahmed and his management team say they are actively seeking new market opportunities and making overtures to clients in hopes of luring them back. The company is also engaging in a promotional campaign and doubling down on marketing efforts, according to its executives. However, clients have raised concerns about the quality of the chemicals produced at the Factory, packaging and labeling, and high prices. A consumer survey conducted by the company found that the affordability of imported chemicals and the lack of supply in local markets have led to a rise in the import of chemicals from China, India, Turkey, and other countries.

ECX, Coffee Authority brews new pricing system following exchange rate float

The Ethiopian Commodity Exchange (ECX) has introduced a new pricing mechanism for coffee sold on its trading floor but exporters say the changes do not reflect the high prices erasing their margins in the domestic market. Officers at the Exchange and officials at the Ethiopian Coffee and Tea Authority say the new pricing system, which is updated weekly based on the New York Arabica Coffee Price and the prevailing exchange rate at the Commercial Bank of Ethiopia, is meant to benefit coffee growers. A statement from ECX indicates distortions in the country’s exchange rate policy had previously forced it to implement a comparative pricing mechanism accounting for domestic market a nd export prices. However, the recent liberalization of the forex market has enabled it to shift towards the new pricing system, according to the statement. “Based on this reform, and with the aim to benefit local coffee producers and suppliers from the forex liberalization, ECX has decided to make adjustments to its fixed pricing system for coffee,” it reads. The Exchange used to set a price range for coffee traded on its floor based on quality. The Authority, meanwhile, sets a floor price for exporters. This week’s statement says prices will henceforth be determined by taking the weekly New York price, the daily CBE exchange rate, related price adjustments, the cost of preparing coffee for market, and profit margins into account. ECX determines pricing for coffee transactions in the domestic market, setting a range for trade between suppliers and exporters. On the other hand, the Authority determines the price floor for exports. The new pricing mechanism will not apply to specialty coffee, according to the statement. Although officials see the new system as necessary to reverse a market trend where domestic prices far outstrip international ones, coffee exporters who spoke to The Reporter expressed their doubt about the feasibility of the revised pricing mechanism. They observe that one feresula (a unit equivalent to 17 kilograms) sells for approximately 6,000 birr on the ECX floor, much lower than domestic market prices. “However, in actuality, we are purchasing a feresula of coffee in the domestic market for 10,000 or 11,000 birr,” said one exporter. Although sometimes prices can fall as low as 8,000 birr per feresula, it is still significantly higher than what a supplier can hope to get on the ECX floor. “The Authority and ECX do not recognize this actual market price. They say coffee is still being sold for 6,000 domestically. Tax authorities also do not recognize the prices. So, in reality, we are purchasing and exporting coffee at a loss because the government can not implement the pricing it has introduced,” said an exporter, who spoke anonymously. Washed coffee sold for between 5,500 and 6,500 birr per feresula on October 31, 2024, according to daily trade data from ECX. Exporters argue the government’s regulatory measures in the coffee market are making things worse. “The new directive says coffee pricing is being liberalized but both the Authority and ECX continue to determine prices. The Authority sets the price floor for exports to avoid under-invoicing. Meanwhile, both of them try to align the international pricing system with the domestic pricing system, claiming to benefit local growers and suppliers. But at this point, this action has inflated domestic prices and made the export business difficult,” said the exporter. He did, however, concede the recent forex market liberalization has significantly benefited coffee exporters. How the changes will affect the trade of the country’s most valuable export commodity remains to be seen but officials have lofty ambitions for the fiscal year. They target USD two billion from the export of 450,000 tons of coffee before July 2025.

Parliament to Review New Urban Land Leasing Decree Allowing Negotiations

A bill allowing the transfer of urban land through lease will be submitted to Parliament. In addition to auctions and allocations of urban land, a draft decree will be submitted to Parliament to permit the transfer of urban land through negotiations and leases. This new decree mandates that at least 20% of the land cities prepare for allotment should be used for housing construction. This proclamation, to be issued on “Leasing of Urban Land,” is scheduled for presentation at the House of Representatives’ regular meeting on Tuesday, October 19, 2017. The new law, replacing the “Declaration on Occupying Urban Space” approved in 2004, is organized into six sections and 49 paragraphs. The first part of the draft decree covers general provisions, while the second part outlines basic lease provisions. The third part details the implementation of urban land lease auctions. Section IV of the decree sets out provisions on urban land allocation and negotiations, specifying the conditions under which leases are permitted. The fifth part addresses the management of urban land leases, and the final part includes various provisions, including penalties. The new decree has been prepared in response to the country’s rapid economic growth, which has increased demand for urban land. It aims to establish a land supply and management system that meets this demand effectively. The document states that additional provisions are necessary to improve the lease system and address legal gaps in the current law. A notable addition to the draft decree is the provision allowing land transfer through negotiation and lease. The existing proclamation, now thirteen years old, only permits leasing urban space through auctions or allocations. The new “negotiation” provision enables developers to lease urban land for “services of special national interest” when it cannot be transferred by auction or allotment. This is implemented by the “relevant body” in negotiation with developers, based on the development plan, as explained in the interpretive section of the decree. The document also notes that urban land may be transferred through negotiations following the “National and Regional Urban Development Spatial Plan.” For development requests from the government and private sector, the new decree allows land transfer through negotiations. The draft decree specifies that urban land may be transferred through negotiations for projects such as federally managed industrial parks, industrial development, higher education and health institutions, and research sectors. The decree states that land requests for star hotels supporting the service sector and tourist resorts may also be handled through negotiations. Urban redevelopment projects developed by the private sector or in public-private partnerships will follow the same land allocation method. Land requests for real estate or housing development, large shopping malls, fuel tanks, distribution centers, and modern parking structures may also be obtained through negotiation, as indicated in the new decree. Negotiable projects are assessed on “the content, scope, and depth of future development; the accommodation and benefit of existing beneficiaries in the development area; benefit and harm reduction for surrounding communities; and the extent of infrastructure provision,” as specified in the draft decree. The transfer of urban land through negotiations in regions, Addis Ababa, and Dredawa administrations will require cabinet approval. The decree also stipulates that the negotiable transfer price of land should not be below the area’s average lease price. Provisions from the existing proclamation on urban land allocation are partially included in the draft bill submitted to Parliament. However, the new decree introduces a provision for the “land supply situation for housing construction.” This provision mandates that “at least 20%” of land set aside for housing in cities must be used for this purpose. An individual who benefits from a housing cooperative, joint housing development program, or individual urban land allotment cannot benefit from another allocation within the same city. The new decree also amends requirements for individuals who win land auctions. In the current Lease Proclamation, the winning bidder is determined by the highest bid price and advance payment. This is revised in the draft decree, where lease bid winners are identified based on the bid price, down payment, and lease payment calculated over the lease term. According to the new decree, the final score will consist of 65% of the auction price, 20% of the advance payment, and 15% of the lease payment. The new decree also extends the review period for the base lease price from two years to three years. The “Lease Base Price” is defined as the minimum land cost, considering infrastructure costs, removal of existing structures, developer compensation, and other relevant requirements. In the transitional provision section, the ordinance specifies that urban land requests submitted to the appropriate body before the decree’s enactment will remain valid for up to six months from the decree’s effective date. The document states that decisions will be based on the existing decree and any rules and regulations issued under it. Save my name, email, and website in this browser for the next time I comment. Δdocument.getElementById("ak_js_1").setAttribute("value",(new Date()).getTime())

How Ethiopia’s Floating Birr is Reshaping Trade for Exporters and Importers

Post Floating: Are Businesses Staying Ahead of the Curve? The recent shift to a market-based exchange regime is affecting businesses across all sectors, from small enterprises to large corporations. Exporters and importers are particularly feeling the impact as they navigate a new system where the birr’s value is determined by market forces, not the central bank. This change has introduced new challenges and opportunities, which force businesses to adapt quickly. The personal stories and challenges of those on the front lines reveal the intricate ways these changes are shaping their lives and businesses. The business environment in Ethiopia is facing significant challenges due to the devaluation of the birr and the imposition of a 14% credit cap, which severely restricts access to capital. These factors are collectively straining the financial health and operational capacity of businesses, making it difficult for them to secure the necessary funds to sustain and grow their operations. This pressure will likely hinder the success of the floating currency regime, as it may exacerbate inflation, reduce market confidence, and limit the economic benefits that a floating exchange rate is intended to bring. Getahun Sitotaw, Finance and Procurement Manager at Belayab Motors, noted that while recent reforms have improved foreign currency availability, demand is decreasing due to constrained working capital. He explained that the 14% credit cap, coupled with the devaluation of the birr, is making business operations challenging and pushing consumers to focus only on essential goods. “One noticeable impact of the reform is the rise in imported goods’ prices. Currently, we’re only selling cars from our existing inventory,” he shared. He also expressed concerns about a potential downturn in the future market. “In the past, consumers responded positively to price increases, but with reduced purchasing power, their reaction has shifted negatively,” he explained. “Local businesses are feeling the squeeze as competition grows, and many worry they’re not ready to keep up with international players,” said Samson Tizazu, Business Partner at Proma Partners PLC. “On top of that, we’re seeing concerns about whether our regulatory framework can truly support this new market landscape. Bureaucratic red tape, outdated systems, and inefficiencies in both government and some private sectors are holding us back, making it harder to implement the policies we need for a thriving economy.” Despite these challenges, Samson noted that this shift has created opportunities for foreign investment, spurring innovation and bringing a wider range of goods and services that can boost economic growth and improve consumer options. Following the shift to a free-market system, one would expect a noticeable gap between the supply and demand of foreign currency. Yet, the opposite seems to be occurring. Although it’s only been a short time since the shift, the market is behaving unusually. According to Samson, fintech companies and international corporations are major disruptors in the market, leveraging technology to offer alternative financial services while introducing competitive pricing and innovative products. These entrants are reshaping consumer expectations and pushing traditional business models to adapt. After the birr was floated, the National Bank of Ethiopia (NBE) took practical steps to support market stability and ensure fair access to foreign exchange. To help manage liquidity, the NBE held a Special Foreign Exchange Auction, giving banks an equitable opportunity to access forex and promoting market steadiness. Additionally, NBE launched an initiative called “Debo” to encourage the use of formal remittance channels, making it easier for the Ethiopian diaspora to support the nation’s growth. Through Debo, NBE also introduced Unite.et, a platform designed to simplify virtual account openings and provide easy access to banking services for diaspora members. Additionally, the NBE imposed a 2% cap on the spread between the buying and selling rates of foreign currencies to enhance market transparency and reduce arbitrage. The NBE has also mandated daily reporting of significant forex transactions and implemented an electronic trading platform for inter-bank transactions to improve efficiency. These measures aim to promote a more competitive, transparent, and stable foreign exchange market in Ethiopia. Getahun appreciated the NBE’s decision to enforce a 2% cap on the spread between buying and selling rates for foreign currencies, viewing it as a positive step towards reducing the price of foreign currencies. However, he also noted that banks may adjust to this cap by increasing service charges elsewhere to offset the reduced margins. “The National Bank of Ethiopia (NBE) has implemented measures, such as the 2% cap on foreign currency spread rates, which can be regarded as a double-edged sword,” said Samson Tizazu. He noted that while this cap aims to enhance market stability by preventing excessive spreads that could deter foreign investment, it may also create challenges for financial institutions that rely on wider spreads for profitability. Overall, he views these regulatory actions as opportunities to foster a more stable and predictable market environment, provided they are executed with careful consideration of the broader economic context. Looking ahead, he indicated that the long-term market landscape is expected to be characterized by greater integration into the global economy, presenting both growth opportunities and challenges related to competition and regulation. To ensure market stability, it is essential for the NBE and other regulatory bodies to strengthen frameworks that support fair competition, improve access to foreign currency for small and medium enterprises, and promote innovation in financial services to meet changing consumer needs and technological advancements. Shifting to a market-based foreign exchange system is a bold move for Ethiopia’s economy. While this change undoubtedly can help drive growth and bring in investments, it’s important for the National Bank of Ethiopia (NBE) to monitor market stability closely. Balancing the interests of international lenders with the economic realities faced by the public is essential. The NBE should focus on fair regulations that support growth and make sure that everyone benefits from this new system. Save my name, email, and website in this browser for the next time I comment. Δdocument.getElementById("ak_js_1").setAttribute("value",(new Date()).getTime())

Fitch Upgrades Ethiopia’s Credit Rating Amid Economic Reforms and Eased Financial Pressures

October 28, 2024 – Fitch Ratings has raised Ethiopia’s Long-Term Local-Currency (LTLC) Issuer Default Rating to ‘CCC+’ from ‘CCC-‘, citing easing financial pressures and enhanced macroeconomic stability. This marks a positive shift, as the country’s Long-Term Foreign-Currency rating remains at ‘RD’ (Restricted Default). Key Drivers of the Upgrade Fitch’s decision reflects Ethiopia’s continued efforts to implement economic reforms, primarily through changes led by the National Bank of Ethiopia (NBE). In July 2024, the NBE adopted a market-based approach to the exchange rate, causing the official rate to depreciate by over 50% and aligning it more closely with the parallel market rate. This shift has reduced distortions in the foreign exchange (FX) market, allowing for greater transparency and stabilizing Ethiopia’s economic outlook. Additionally, the NBE removed restrictions on foreign exchange allocations for importers, which has increased FX availability, encouraging trade and investment. As part of broader economic reforms, the NBE introduced a 15% interest-rate-based monetary policy, along with regular open market operations, to improve monetary policy transmission. Fiscal Reforms and International Support The International Monetary Fund (IMF) approved a new four-year Extended Credit Facility (ECF) Arrangement for Ethiopia in July 2024, with an immediate disbursement of $1 billion from a total $3.4 billion funding. This, combined with a $3.75 billion disbursement from the World Bank, is expected to alleviate Ethiopia’s reliance on domestic financing for its fiscal deficit, reducing financial repression and containing inflation. Fitch projects that net domestic borrowing will decrease to 0.5% of GDP in FY25, down from 2.1% in FY23. Government fiscal deficits are also expected to narrow, reaching 2% of GDP in FY24, although forecasts suggest a slight increase to 2.7% of GDP in FY25 due to increased spending, including a 1.5% GDP fiscal package to support vulnerable populations and public sector wage increases. Addressing Debt and Financing Needs Ethiopia’s focus on managing debt includes converting National Bank advances of ETB242 billion into long-term government securities and eliminating mandatory treasury bond purchases by commercial banks by FY25. This approach aims to reduce reliance on non-market-based local financing. Ethiopia remains in default on foreign-currency debt obligations, having suspended payments on a $1 billion Eurobond in December 2023. However, progress has been made under the Common Framework to restructure $15.1 billion in external debt, with an agreement expected by year-end. Official international reserves, estimated at just above $1 billion in FY24, are projected to increase to $2.9 billion in FY25 and $4.5 billion in FY26. Economic Outlook Fitch anticipates that these fiscal and monetary policy reforms will stabilize Ethiopia’s economy, although it warns of rising government borrowing costs, projected to reach positive real interest rates. The increased costs are expected to raise rollover risks, making the next phases of economic management critical. Ethiopia’s progress toward debt restructuring, especially with major creditors like China, reflects confidence in its ability to handle local-currency obligations without adding to the ongoing restructuring. As Ethiopia negotiates with commercial creditors, the success of these measures could further support its goal of economic stability and growth in the coming years. Nomater Ethiopia sweetmay country Save my name, email, and website in this browser for the next time I comment. Δdocument.getElementById("ak_js_1").setAttribute("value",(new Date()).getTime())

Ethiopian Shipping and Logistics Eyes Six New Ships to Meet Ethiopia’s Rising Import-Export Needs

Executives at Ethiopia’s state-owned Ethiopian Shipping and Logistics Services Enterprise (ESLSE) are advancing plans to add six bulk cargo ships to their fleet as the enterprise aims to bolster its capacity and support the nation’s growing import-export needs. According to The Reporter Wondimu Daba, ESLSE’s Deputy CEO for Corporate Services, confirmed that the ESLSE board is evaluating multiple acquisition options, including time charters, voyage charters, or outright purchases of the vessels. “We are fully prepared to bring in these six ships. The board is now assessing whether a time charter, a voyage charter, or a direct purchase would be most strategic,” Wondimu said, adding that the acquisition will proceed through a standard bidding process in line with government procurement protocols. As Ethiopia’s sole multimodal logistics operator, ESLSE manages a considerable share of the country’s trade logistics. According to its 2023/24 performance report, ESLSE handled approximately 45 percent of Ethiopia’s 8.25 million tons of dry cargo imported through Djibouti’s ports, the primary maritime gateway for Ethiopian goods. The report also highlights ESLSE’s role in supporting Ethiopia’s export market, overseeing the shipment of over 13 million tons of goods by sea last year. However, despite these achievements, the enterprise still faces challenges in meeting the logistical demands of Ethiopia’s expanding trade economy. Transport and Logistics Minister Alemu Sime recently highlighted ESLSE’s need for additional fleet capacity in a statement to state media. “The country’s import-export demand is growing, but with only 10 bulk cargo ships currently owned by the enterprise, this is far from enough to support our logistical requirements,” Alemu explained. “This shortage often necessitates leasing additional ships through rental agreements to meet demand.” In an effort to bridge this gap, ESLSE transported close to 834,000 tons of goods last year using vessels secured on lease or rental contracts. This approach has supported the firm’s operations but has also contributed to substantial operating expenses. Despite generating 57 billion birr in revenue during the last fiscal year, heavy operational costs, totaling 48 billion birr, have limited net financial gains for the enterprise. The planned acquisition of six bulk carriers marks a significant step towards reducing reliance on leased vessels and strengthening ESLSE’s capacity to manage Ethiopia’s shipping needs domestically. With the country’s import-export volumes expected to rise, these strategic fleet enhancements are positioned to play a vital role in achieving more efficient, cost-effective logistics solutions. […] at Ethiopia’s state-owned Ethiopian  Shipping and Logistics Services Enterprise (ESLSE) are advancing plans to add six bulk cargo ships to their […] Save my name, email, and website in this browser for the next time I comment. Δdocument.getElementById("ak_js_1").setAttribute("value",(new Date()).getTime())

The Impact of Government Regulations on Ethiopia’s Real Estate Market

Is Ethiopia’s Real Estate Losing its Balance?With a series of impactful economic reforms, Ethiopia’s business environment is undergoing a significant transformation, impacting virtually all sectors. One of the most affected is the real estate sector, which is navigating a complex landscape marked by both opportunity and constraint. The recent shift to a market-based foreign exchange rate has led to increased costs for imported construction materials and machinery, along with fluctuations in the value of the USD against the birr. New regulatory measures, like the draft ‘Real Estate Development and Real Property Marketing and Valuation Proclamation’ and updated setback rules, are adding some complexity to the industry. At the same time, the government’s decision to open the door to foreign investors is shaking things up in the real estate market. It’s shifting from being dominated by just a few local developers to a much more diverse and competitive environment. “Ethiopia’s real estate sector has faced numerous challenges for a long time. Insufficient infrastructure development, particularly in water and electricity, remains a critical issue that the government must address. Previously, we relied solely on Ethiopian Electric Power (EEP) for transformers, which created significant delays due to long queues. Fortunately, this issue has been resolved, allowing us to source transformers from the open market now. However, water supply continues to be a challenge. At Noah Real Estate, we are proactively addressing this by developing underground water sources before constructing new homes,” said Yoseph Desta, Legal Advisor and Customer Service Manager at Noah Real Estate. According to him, devaluation is not the only reason many developers are raising prices. He believes that some developers adjust their prices based on market research of input prices, while others respond to public concern over the devaluation of the birr. He advises that, given the recent floating exchange rate reform, buyers should take advantage of the initial pricing of homes by paying 100% upfront. This approach provides security, especially as the value of the birr continues to decline daily. The Ethiopian government is aggressively pursuing policy reforms that can bring both good and bad news for businesses. Yoseph is worried that the recent draft of the Asset Recovery Proclamation might put a damper on interest in the real estate market, especially if it’s rushed through. “While we won’t feel the effects right away since the properties have already been sold, it could shake our buyers’ confidence and make them hesitant about future purchases, which could really impact the market in the long run,” he shared.The proposed mandatory licensing for real estate businesses through the “Real Estate and Development and Real Property Marketing and Valuation Proclamation” adds significant complexity to the sector. This new requirement, outlined in Ethiopia’s Real Estate Development and Immovable Property Transaction and Valuation Bill, aims to ensure that only certified and qualified professionals are allowed to carry out real estate activities. While this move is intended to enhance the industry’s credibility, it also presents challenges for developers and agents navigating the new regulations. For instance, the proclamation requires developers to build and hand over at least 50 housing units to obtain a real estate license, while those seeking government land must deliver between 500 and 5,000 units based on demand, with 40 percent designated as affordable housing. Additionally, funds raised from homebuyers will be securely held in a closed account. Updated setback rules complicate operations for real estate businesses by dictating the minimum distance between buildings, which aligns with urban planning goals for public safety and sustainability. Compliance may increase costs and extend project timelines.“The setback rule will only impact developers working on homes that are 500 square meters or smaller. For those developing larger properties, there won’t be any effect. While demolishing buildings close to the street may come with additional costs for developers, it ultimately supports the city’s urbanization plan,” Yoseph Desta said. However, he points out that many developers in Ethiopia, like those around the world, often rely on buyers’ funds to finance construction. He sees the proposed ‘Real Estate Development and Real Property Marketing and Valuation Proclamation’ as a positive step that could help reduce illegal practices in the sector, like developers vanishing after taking buyers’ money. However, he worries that this new requirement might create significant hurdles for emerging developers who are working with limited resources.While the real estate sector has struggled with affordability, it has made significant strides over the last decade. What was once dominated by a handful of developers has now expanded, much like small shops lining the streets. This growth bodes well for the country’s urbanization goals. However, many real estate developers have often lacked loyalty to their buyers, relying heavily on captivating marketing strategies. To truly support the sector, it’s essential for the government to make housing more affordable and ensure its availability. At the same time, the government must strike a balance between discouraging illegal practices and promoting legitimate development. “Developers need to be respectful of regulations, while the government should ensure land is available at reasonable prices and provide subsidies. It’s also important to encourage and support local manufacturers of real estate inputs. We should discourage imports and instead welcome import substitution,” Yoseph Desta advised. Despite facing numerous challenges, Noah Real Estate officially handed over 750 homes to new owners at its latest residential community, the Noah Airport Drive Site in Summit. This development offers a variety of properties, including apartments ranging from 75 to 128 square meters, with options for 2 to 3 bedrooms, along with 32 villas and 45 commercial shops. “The COVID-19 pandemic presented significant hurdles during this project, forcing us to even reduce our staff. On top of that, our market has been unstable, and ongoing conflicts in various parts of the country have added to the difficulties. Yet, despite these challenges, we successfully delivered these homes,” shared Yoseph Desta. Save my name, email, and website in this browser for the next time I comment. Δdocument.getElementById("ak_js_1").setAttribute("value",(new Date()).getTime())

Mines Ministry eyes natural gas production in 2025, revises plans for fabled fertilizer plant

The federal government is moving forward with ambitions to produce liquified natural gas (LNG) for household energy consumption by mid 2025, according to the Ministry of Mines. Golden Concord Ltd (GCL), an energy service provider and manufacturing firm based in Hong Kong, is slated to undertake a three-phase production plan, according to the Ministry’s 2024/25 planning document. Poly GCL, a subsidiary of the GCL Group, was first granted a concession to explore and produce natural gas in the Somali region in 2013.  In June 2018, the Chinese company conducted crude oil production tests in the Calub and Hilala oil fields. Calub has 11 wells – all of which are productive. Former Mines Minister Takele Uma revoked the concession in 2022 for Poly CGL allegedly falling behind the schedule stipulated in the company’s licensing agreement. The same year, Netherland, Sewell & Associates, an American firm specializing in petroleum resource analysis, certified the presence of seven trillion cubic feet of natural gas in Ogaden. The Ministry reversed its decision in June this year. The GCL Group is expected to begin producing 180,000 cubic meters of LNG per day by July 2025, according to the planning document. Officials at the Ministry want to see the company engage in LNG exports by mid-2026, with the construction of roads and other necessary infrastructure at the extraction site scheduled to begin in the coming six months, according to the document. Sources say there are plans to export LNG to China. The planning document states that Ethiopia registered more than USD 825 million in investment capital related to the granting of natural gas concessions for investors in 2023/4. The third phase of production consists of using the natural gas deposits as an input for the government’s long-held ambitions to produce chemical fertilizers domestically. Financial and technological feasibility studies for the venture will be finalized this year, according to the Ministry. In 2021, the government signed a joint development agreement with the Moroccan OCP Group to establish a fertilizer production plant in Dire Dawa. There have been no indications of progress on the project in the three years since. The planning document reveals the Ministry has signed an agreement with Wuhuan Engineering Co. Ltd. to conduct a techno-economic study to establish a fertilizer factory that uses natural gas as an input. The feasibility study is expected to be finalized in five months, according to the document. Feasibility studies for the construction of nearly 600 kilometers of roads linking Jigjiga with Gode via Deghabour and Kebridhar are underway, according to the document. The government is also looking to upgrade the road from Ginir to Gode, it reads. The federal government has placed a request for project financing from the government of South Korea, reveals the document. The Ministry is also preparing legal frameworks to govern and regulate the novel natural gas industry. Its experts are working on a policy, proclamation, regulation, and directives, according to Ministry data. Analysts stress that Ethiopia’s natural gas exploitation should prioritize the use of natural gas as input for fertilizer production, which they say is more essential for the country’s agriculture and food security than household LNG consumption. Yet, the fertilizer plant also requires potash exploitation in the Afar region, which is also still in the pipeline. Ethiopia spent USD 1.3 billion on fertilizer imports in 2022, according to the UN COMTRADE database. Ministry officials declined to respond to queries about the progress of natural gas extraction in the Somali region.

Tax temptations slow Ethiopia’s telecoms, digital banking momentum: GSMA report

Only 11pct of Ethiopians generate income from internet use Reports from a global telecoms lobby group warn that levying taxes on telecom and mobile money services could reduce the volume of digital transactions by up to half. The Global System for Mobile Communications Association (GSMA), a worldwide industry lobby group with close to 800 mobile operators as members, released its first Ethiopian-focused report this week in collaboration with Ethio telecom. Among the key points mentioned in ‘Driving Digital Transformation of the Economy in Ethiopia’ is the government’s recent introduction of value added tax (VAT) on digital financial services, including mobile money. “It is important that the government avoids the temptation to resort to distortive taxation on emerging mobile money services, as seen in other African countries, as this would jeopardize the sector’s development. While taxation is a necessary tool for generating government revenue, this particular imposition could have unintended negative consequences on the growth and development of mobile money in Ethiopia,” it reads. GSMA warns that taxation and the associated rise in transaction costs could drive price-sensitive consumers away from mobile money services, which it describes as crucial for financial inclusion in areas lacking traditional banking outlets. It recommends VAT reductions or exemptions for digital financial services “to maintain the growth momentum of this crucial sector.” “Without such adjustments, the tax could create a barrier to further innovation and expansion, stifling Ethiopia’s efforts to build an inclusive digital financial ecosystem. Mobile money levies have been shown in a number of countries to slow down the growth and usage of mobile money,” reads the report. The organization estimates the new tax rules could result in digital transaction values dropping by as much as half. Ethiopia saw upwards of 300 billion birr transacted digitally in 2023, according to the report. Telecoms operators in Ethiopia are also subject to a five percent excise tax on mobile and wireless connections, in addition to licensing fees. “Sector-specific taxation raises costs to consumers irrespective of how the taxes are structured. Although some taxes are levied on mobile operators, most of their costs are ultimately passed on to customers in the form of higher prices,” reads the report. GSMA argues against the 10 percent excise duty applied to smartphones, which it says will hinder the country from achieving the targets set out in its Digital Ethiopia 2025 strategy. The report recommends providing benefits and incentives for telecom infrastructure development, digital finance and international communication services. The Association also wants to see a temporary suspension of taxes on digital financial services. Bureaucracy and complicated permit procedures are also stifling the telecom sector, according to the report. “No national-level legislation governs access to rights of way and other permits. This means that the process and the fees charged vary considerably across different regions and even localities. In some cases, local authorities charge high fees in areas which may result in lower profitability, making network rollout in those areas less commercially viable,” it reads. GSMA recommends the introduction of a consistent national framework for permits and right of way concessions, as well as a standardized fee system. The Association estimates the telecommunications sector accounted for eight percent of Ethiopia’s GDP in 2023, generating 57 billion birr in taxes alone. ‘The State of Mobile Internet Connectivity 2024’, another GSMA report published this week, features a survey of mobile and internet access in a dozen  Low and Middle Income Countries (LMICs) including Ethiopia, Egypt, Kenya, and Uganda. The organization says it was unable to conduct interviews for its survey in the Amhara region, Western Tigray, Metekel Zone (Benishangul-Gumuz) and parts of Oromia and Afar due to security concerns. “These areas represent 27 percent of the population in Ethiopia, so the sample was representative of the remaining 73 percent who live outside these areas,” it reads. With 53 percent, Ethiopia had the lowest proportion of mobile internet users among the countries surveyed while India had the highest at 94 percent. Up to 28 percent of Ethiopian mobile internet users utilize social media for business, according to the report. GSMA found that 93 percent of urban residents in Ethiopia own a mobile phone. The figure is 60 percent for rural areas. Still, the report notes that the high cost of mobile phones is the top barrier to further use of mobile internet in Ethiopia, along with data costs and inconsistent internet coverage. No less than 91 percent of Ethiopian internet users have social media accounts, while 28 percent access mobile money or online banking services. Less than five percent use the internet to order goods, while 11 percent depend on the internet for income generation, according to the report.