Hello and happy 2024. This is Addis Fortune bringing you the week's biggest stories involving tax issues, manufacturing woes and financial milestones. The headlines include failure to clear tax obligations wiping off diaper plant assets, Tax troubles threatening floriculture industry, Currency rues driving Lifan Motors production to grinding halt, Zemen Bank redefining success in banking giants' league and Riding in limbo amidst transparency woes.

Manufacturer of Canbebe diapers finds itself in a web of legal disputes and asset seizures within the Hawassa Industrial Park where it has been operating for the past five years. Ontex Hygienic Disposables Plc's inability to meet export requirements became increasingly apparent, leading to non-compliance and, hence, the watchful eyes of customs officials. They took over Ontex's plant in the Park, which had been inactive for over two years. The climax of the events was the seizure of the company's assets a month ago, a dramatic turn of events for the once-thriving manufacturer. The company's troubles were further compounded by a post-clearance audit conducted by the Park's ECC branch which revealed discrepancies in input-output reconciliation and alleged abuse of duty-free privileges, leading to claims by federal tax authorities of approximately 400 million birr in tax receivables, despite some reduction in the levied duties through ministerial intervention. Company executives blame the high cost of production and logistical complexities that caused Ontex's products to be less competitive globally. Industry insiders emphasise the need for strategic planning and comprehensive policy reforms to create a conducive environment for sustainable industrial growth. The case of Ontex, they argue, shows the pitfalls of poor initial business planning and a failure to adapt to market realities.

 

One of the pioneering automotive assemblers Lifan Motors faces a myriad of challenges that could lead to its exit from the Eastern Industrial Park, casting a grim shadow on the sector. The once-thriving company in Dukem town, Oromia Regional State, has not produced a single vehicle in the past two years due to an acute foreign currency crunch. Company executives said futile attempts to secure foreign currency through appeals to the National Bank of Ethiopia and commercial banks left them in a state of uncertainty. Their plans for expansion and automotive exports to Egypt and Sudan failed to materialise, contributing to its decline in operations fueled by the inability to bring in some of the key inputs from its headquarters in Chongqing municipality, Southwest China. The scarcity of locally assembled vehicles and the soaring prices of imported alternatives have created a market gap that Lifan Motors once filled. Ethiopia spent close to five billion Birr on the import of road motor vehicles last year, with the value highly understating the amount of foreign currency used due to the prevalence of under-invoicing prices in the sector. The potential void left by the Company's departure could further strain the already challenging dynamics of the automotive sector as the models gained popularity over the years when the prices of imported vehicles surged.

In an uncertain turn of events, a heated tax dispute is blossoming between authorities and six major investors in the floriculture sector stemming from an investigative tax audit of the Dutch family-owned business initiated two years ago. At the centre of the storm is Desa Plants Plc, a subsidiary of Florensis, Europe's largest supplier of cut flowers with 13 million euros in revenues last year. A tax audit resulted in the rejection of 38 percent of its expenditure. Subsequent audits of Red Fox Ethiopia Plc, Maranque Plants Plc, Asella Farm Plc, Klaver Farm Plc and Marginpar Farm Plc, had 55 percent of their costs rejected by the Medium Tax Payers Branch Office. As the industry grapples with regulatory uncertainties, legal battles, and financial pressures, the need for clear standards, comprehensive studies, and well-defined legal frameworks becomes increasingly evident. Caught in the Ministry's ambitious plan to collect 440 billion birr in tax revenues this year – a 35 billion increment from the previous year – the floriculture businesses are facing heightened pressure. Profit margins are dwindling, with production costs exceeding revenues by five percent. The importance of investigating potential tax evasion is deemed critical by legal experts as companies continue to remain in business after declaring a loss for three years. They argue that clear legal frameworks are essential for maintaining tax integrity and fostering business trust in the long term.

 

In the ended financial year, Zemen Bank has defied expectations, posting a 22.3 percent profit increase to 1.81 billion birr making its mark in the industry. Zemen's Return on Equity and Return on Assets outpace industry averages, demonstrating its astute asset management and profitability strategies. This performance, along with a robust increase in financial intermediation income, sets Zemen apart in the banking industry. At the core of Zemen's success is its President, Dereje Zenebe, an alumnus of Addis Abeba and Lincoln universities. With over 25 years in finance and roles at Wegagen and Awash banks, Dereje's expertise has been instrumental in Zemen's growth, proving that effective leadership can be a game-changer in banking. Despite a drop in Earnings per Share, Zemen Bank's strategic investments in technology and skills acquisition demonstrate a forward-thinking approach. The Bank thrives in a competitive landscape by increasing its paid-up capital by 37.2 percent to meet regulatory demands. While Zemen Bank revels in its success, it faces the challenge of managing rising operational costs. The focus now shifts to balancing growth with efficient expense management, a task that will test the strategic insight of its leadership in the evolving banking industry.

 
The iconic blue taxi drivers are considering the formation of a robust new organisation and advocate for their interests as frustration mounts over delays in receiving vehicles promised by Elauto Engineering Plc. The saga surrounding Addis Abeba's Ladas has spanned for four years, involving the suspension of duty-free privileges by the Ministry of Finance, the establishment of a new factory in Dire Dewa City by Elauto, and a growing animosity among the close to 200 associations representing the drivers. Over 8,000 anxious Lada taxi drivers eagerly awaited the cars initially promised within four months. While senior management at Elauto points to regulatory hurdles as reasons for the delayed imports and distribution, the drivers allege reluctance from the company to take up loans from credit facilities. As inflation surges and the cost of the promised vehicles doubles to 1.2 million birr drivers are growing sceptical about the transparency of the process, wondering if they were misled from the beginning. The discontent has escalated to the point where an association was suspended six months ago for alleged defamation. The drivers' uncertain future underscores the challenges faced by traditional taxi services in adapting to evolving market dynamics dominated by technologically advanced competitors. 

 

that’s all for today. We’ll be back with more updates next week. 

May good luck and fortune always be with you.