Tamrat G. Giorgis and Wudineh Zenebe
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.
Addis Fortune
