Hello. This is Addis Fortune rounding up significant business developments over the week. Headlines include analysis of the IMF deal negotiations, gas pumps drying in Addis as floods block vital import routes, a bumpy ride on the road to green, the central bank paving the way for a Sharia-compliant board and authorities contemplating to use recycled plastic in food and beverage packaging.

As federal authorities eagerly anticipate a potential billion-dollar International Monetary Fund package, recent meetings in the capital with the International Monetary Fund team concluded without a deal, despite holding significant implications for Ethiopia's economic fate. Negotiations focused on structural economic reforms crucial for addressing pressing issues such as food security, humanitarian needs, post-conflict reconstruction, and high inflation. The potential International Monetary Fund assistance, amounting to up to 3.5 billion dollars in loans, is contingent on the implementation of structural reforms aimed at restoring macroeconomic stability. Key areas of contention between the Ethiopian government and the International Monetary Fund include liberalising the forex regime, disciplining off-budget spending, tax reforms, and restructuring high debts held by state enterprises. These reforms are seen as essential steps to address macroeconomic imbalances and restore investor confidence. Governor Mamo Mihretu shared the National Bank of Ethiopia's commitment to maintaining stable prices, promoting financial inclusion, and implementing structural reforms outlined in the bank's three-year strategic plan, despite the outcomes. It includes transitioning to a price-based monetary policy system, promoting market operations, enhancing interbank forex and money markets, and addressing disparities between official and parallel exchange rates.

 

Ethiopia is facing a fuel shortage triggered by heavy rains that damaged critical transportation routes from Djibouti ports to the country's interior. The heavy rainfall damaged the crucial 143 kilo meter road from Dikhil to Galafi, where nearly 300 trucks carrying millions of litres of benzene and diesel daily have been immobilised, exacerbating the nationwide fuel shortage. With diesel being the primary fuel for transportation services, including minibuses that are vital for urban commuters in the capital, the shortage has had widespread effects. While efforts have been made to mitigate the benzene shortage, diesel remains a concern. Ethiopian Petroleum Supply Enterprise, responsible for ensuring sufficient fuel supply, has resorted to using its diesel inventory across its depots but is cautious due to the limited capacity to address prolonged crises. Addis Abeba's ongoing development projects have contributed to the supply crunch, with major gas stations out of operation. Experts emphasise the need for a more forward-thinking approach to energy policy, advocating for investments in domestic energy sources, infrastructure resilience, and private-sector-led initiatives. Improving railway infrastructure and exploring petroleum resources within the country are among the suggested measures to reduce reliance on imported fuel and mitigate the impact of supply chain disruptions.

 

Ethiopia is rapidly embracing a national push for a greener future while concerns about the resale value of electric vehicles and the associated insurance premiums are raised by owners. Imports nearly doubled over the past three years and recent policy shifts, such as near-zero import tariffs and bans on internal combustion engines for personal use, underscore the government's commitment to environmental stewardship. However, the cautious approach taken by the insurance industry reflects uncertainties surrounding EVs' cost structure and battery life. Industry experts note that the lack of data on electric vehicle repairs and claims complicates insurers' ability to accurately assess risks and establish appropriate premium prices. With limited spare parts availability, qualified mechanics, and established battery lifespans, insurers are resorting to higher premiums to mitigate potential losses. They are imposing premiums up to 3.5 percent, significantly higher than those for traditional internal combustion engine vehicles. This cautious approach has created a ripple effect throughout the industry, hindering wider adoption of electric vehicles. There is optimism for the future. Industry players anticipate that as the electric vehicle market matures and more data becomes available, insurance premiums will adjust accordingly. However, addressing crucial gaps such as the lack of skilled mechanics to service remains a priority.

 

The National Bank of Ethiopia has directed all financial institutions to collaborate on a study aimed at creating a national Sharia-compliant board which would oversee the emerging interest-free banking sector, providing consistency to a currently fragmented service governed by independent committees. Ethiopian Bankers Association, tasked with leading this effort, has instructed banks, microfinance institutions, and insurance companies to designate personnel responsible for interest-free banking and participate, drawing lessons from countries like Malaysia and the Middle East. Stakeholders, including members of the Islamic community and industry experts, indicate the importance of establishing an interest-free directorate to ensure consistent Sharia compliance in banking. They are hopeful a national board would contribute to expanding financial inclusion and promoting research and education in interest-free financial products. Concerns have been raised about potential exclusion from financial assistance during liquidity crises and regulatory constraints hindering the sector's growth.

 

Ethiopia is considering a draft regulation to introduce recycled plastic into food and beverage packaging, aiming to reduce reliance on costly imports and combat plastic pollution. The initiative is led by the Food & Beverage Industry Research & Development Center, urging manufacturers to explore recycling options to reduce the country's dependence on plastic (PET) imports, which currently cost Ethiopia 40 million annually. The proposed regulation, developed in collaboration with industry stakeholders over one and a half years, is under review at the Ministry of Justice. While officials anticipate significant environmental benefits, concerns persist regarding safety and feasibility. Water bottlers express doubts about the quality and safety of recycled plastics, citing concerns over inadequate chemical cleaning practices. Experts raise questions about potential health risks associated with recycled PET packaging, stressing the need for detailed research to ensure safety.

 

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