Hello, this is Addis Fortune, bringing you significant business developments over the week. Headlines include Ethio telecom's digital matrimony with over half a dozen commercial banks, the recent Red Sea troubles threatening smooth coffee exports, tax dispute between AquaSafe water bottler and authorities, a lucrative deal or risky gamble on cryptomining and Bunna Bank's jog past some, stumbling over shareholders return. Stay tuned for details.

Ethiopia's financial sector is poised for a revolution as over six commercial banks join forces with the leading mobile money service, Telebirr, awaiting central bank approval. The collaboration aims for financial inclusion through a digital marketplace, leveraging Telebirr's 41 million user base that offers banks a platform to reach underserved populations, while its innovative credit scoring system, including non-collateral methods, opens doors for the unbanked to access loans. Though lagging behind regional leaders like Kenya's M-Pesa, it is a significant step towards financial inclusion. With Awash, Wegagen, Enat, Sinquee, and Ahadu banks onboard, the partnership is hoped to broaden service offerings and reach underserved populations. It promises a wider range of financial services, with banks like Enat planning microloans for businesses and Wegagen exploring digital share offerings. However, challenges remain. Regulatory frameworks need finalisation, and expanding access to affordable technology and promoting digital literacy are crucial for wider adoption. The financial landscape has long been dominated by traditional commercial banks, which have struggled to extend credit access beyond their less than half-million customer base despite being profitable. The new partnership between Telebirr and commercial banks is viewed by many as a defining moment in addressing these challenges and expanding financial inclusion.

 

Escalating geopolitical tensions in the Red Sea region have affected coffee exporters, leading to a severe logistical gridlock. Nearly 3,000 tones of coffee is stranded at Djibouti ports, posing a threat to the national economy and millions of livelihoods. Major shipping companies, including Maersk, have suspended operations along the Red Sea route due to increased risks. The decision has forced a reconsideration of shipping routes, with Ethiopian exporters and logistics companies exploring alternative routes to Europe through the Indian Ocean via Mombassa and Lamu ports. Despite adding a month to the journey, these routes offer a safer passage, circumventing the perilous waters plagued by militia attacks. Exports destined for the Middle East would use the Arabian Gulf Sea route. The alternative routes are not without constraints. Kenyan ports, constrained by a 28 tones weight limit per container, are currently ill-equipped to handle the volume and specifications of coffee exports from Ethiopia. With its fleet of nine ships, the state-owned Ethiopian Shipping & Logistics has been working to lift some of the pressure. Yet, the overarching crisis persists, exacerbated by partners suspending operations in response to the heightened risk. Experts and industry operators say the coffee sector has not seen substantial policy reform since production was liberalised in these countries in the late 1980s, leaving it vulnerable to global market shifts and competitive disadvantages.

 

Ethiopia's manufacturing sector faces a glaring reality as Debre Birhan Natural Spring Water Share Company., bottler of water brand AquaSafe ceased operations amid a heated tax dispute with federal authorities. Over 600 million birr in tax liabilities have led to asset seizures and a chilling effect on its 300-strong workforce. The company contests the hefty tax bill and pleads for a reevaluation, highlighting potential inaccuracies in the audit process. Most audits have led to prolonged disputes, particularly within the manufacturing sector, failing to consider the potential losses in production. Experts call for reform in the auditing and taxation processes to ensure a fairer approach that supports growth and sustainability. The executives have made multiple appeals to the tax authorities and the Ministry of Finance, requesting a waiver of interest and penalties, reaching 372 million Birr. They had offered to settle 221 million birr in the principal tax over time, contingent on the resumption of their operations. However, officials of the Ministry of Revenues maintained an uncompromising position, reflecting the government's ambitious tax mobilisation target at a time of economic hardship. They offered to waive penalties provided that 15 percent of the total tax liability was deposited upfront, with the balance to be settled in 24 months. The job security of 300 workers hangs in the balance. The Confederation of Ethiopian Trade Union has appealed to the Ministry on behalf of the Company, advocating for the workers' rights amid the uncertainty. However, the Confederation's leaders acknowledge their limited influence over resolving the tax dispute.

 

Seeking to leverage its abundant hydropower and low electricity costs, Ethiopia is wading into the uncharted waters of cryptocurrency mining, to attract foreign currency and investment. Generating around 5,200 Megawatt of energy from hydroelectric sources, the country finds itself at a crossroads. Proponents believe Ethiopia's cheap electricity, coupled with its progressive stance on crypto mining, can jumpstart the economy and generate more foreign income than even coffee exports. The recent establishment of a massive data mining facility by Russian company Bitcluster underscores this growing interest. However, energy experts raise critical concerns. They highlight the risk of crypto mining and exacerbating existing energy deficits, jeopardising grid stability, and diverting resources from crucial sectors like healthcare. With less than 60 percent of the population having access to electricity, allocating significant power to energy-intensive mining operations could further strain the national grid. Cryptocurrency miners gobble up massive amounts of electricity – 10-100 Megawatt each. This energy comes at a cost for other crucial sectors. Experts suggest a single 10 Megawatt facility could power nearly 10 hospitals, while 100 Megawatt, enough for a large-scale mining operation, could power up entire industrial parks in Ethiopia. The government is taking a measured approach. New mining licenses have been temporarily suspended while regulations are drafted to address environmental and grid stability issues.

 

In its latest fiscal year performance, Bunna Bank joined a hoard of competitors in posting a rise in net profits, positioning it as a noteworthy contender within the banking industry. However, its financial performance placed it in a peculiar middle-tier position — above Berhan Bank but trailing behind competitors such as Abay and Oromia banks. Despite the uptick in profits, shareholders experienced a decline in Earnings Per Share, with a drop to 236.44 birr from the previous year but above Berhan Bank (156 birr) while it fell short of Oromia Bank (324 birr) and Abay Bank (360 birr). The Bank's executives attributed the decrease to strategic capital infusions to reinforce its resource base amid rising operational costs. While the move is believed to help Bunna consolidate its capital structure, analysts caution operational efficiency and cost management strategies in a period marked by industry repositioning. The Bank ended its operations with a 6.6 percent climb in net profits to 949.21 million Birr, almost double the profit Berhan Bank reported but lagging behind Abay's 1.55 billion birr and Oromia's 1.58 billion Birr. Although it appears to be dwarfed by Awash Bank's 5.3 billion birr profit (the industry's largest for private banks), Bunna Bank's performance is noteworthy, defying its smaller scale and contributing to the industry's aggregated profit of 22.2 billion birr in the latest operational year.

that’s all for today. We’ll be back with more updates next week. 
May good luck and fortune always be with you.