Hello, this is Addis Fortune with the biggest stories of the week. Headlines include the central bank's latest report, Ethiopia opening its doors to foreign investors, parliamentary scrutiny of the power supplier, industry players' reaction to the proposed excise tax, and Ahadu Bank's financial report.

The federal government has made a policy shift by opening up trade sectors to foreign investment, departing from its historical protectionist stance. When approved, the move aims to stimulate economic growth, enhance competitiveness, and integrate domestic businesses into the global market by allowing foreign investors to participate in export, import, wholesale, and retail, albeit with certain prerequisites and regulations. Under the new rules, foreign investors can engage in trading key commodities like raw coffee, oilseeds, pulses, and livestock, subject to specific conditions and financial commitments. Officials aim to facilitate compliance, issuance of permits, and monitoring of these new provisions through agencies like the Ethiopian Investment Commission and the Ministry of Trade & Regional Integration. While met with cautious optimism by local businesses, concerns remain about foreign dominance, currency regulations, and the need for accompanying reforms to boost productivity and ensure a level playing field. However, proponents believe that competition can drive quality improvements, while partnerships between local businesses and international investors can lead to mutual benefits and innovation.

The publication of the inaugural "Financial Stability Report" by the central bank marks a significant step towards transparency and accountability within the financial sector. The report offers a comprehensive analysis of the country's economic and financial landscape, shedding light on both strengths and vulnerabilities. One of the report's key findings is the high concentration of credit among a select few borrowers in sectors like manufacturing and trade, posing a considerable risk to financial stability. The top 10 borrowers hold a significant portion of total loans, raising concerns about the potential systemic impact if one or more of these borrowers were to default. The report highlights liquidity risks within the banking sector, with several banks struggling to meet minimum regulatory liquidity requirements. The hypothetical scenario of simultaneous withdrawal by the largest depositors underscores the delicate balance banks must maintain between liquid assets and depositor demands. Operational risks, including fraud and forgeries, have also escalated, further challenging the sector's stability. Recent incidents, such as unauthorized withdrawals and robberies, highlight vulnerabilities that require immediate attention.

A proposed excise tax stamp system has sparked controversy among industry leaders in the alcohol, tobacco, beer brewery, and water bottling sectors. While Ministry of Finance officials advocate for the system as a tool against counterfeiting and a means to increase tax revenue, representatives raise concerns about added costs, information leaks, and disruptions to production. At a recent public discussion hosted by the Ministry, stakeholders debated the merits and challenges of the proposed system. Tax policy advisor Wasihun Abate emphasised the need for robust tracking and tracing mechanisms to ensure excise tax compliance and combat counterfeit products. The proposed tax stamps, with a lineage spanning over 350 years across 80 nations, are seen as a potential solution to illicit trade. However, challenges persist, with the excise tax decree falling short of revenue targets in recent years. Industry representatives expressed apprehensions about increased costs and operational challenges, particularly regarding reporting requirements and monopolistic control by stamp suppliers. While the tobacco industry welcomed the proposed stamps to combat contraband, the bottled water sector objected, citing financial burdens and unresolved issues regarding the legitimacy of the excise tax.

 

Ethiopian Electric Power faces intense scrutiny following a damning performance audit, prompting parliamentary demands for swift action. The audit unearthed systemic failures including poor record-keeping, equipment mishandling, and project delays. Ethiopian Electric Utility operated without approved directives, raising concerns about oversight and project execution. Losses of revenue and stolen assets added to the challenges, highlighting coordination deficiencies between Ethiopian Electric Utility and Ethiopian Electric Utility. Parliament demanded accountability and an action plan within 30 days. Ethiopian Electric Utility's CEO defended the organisation's overall performance, emphasising efforts to rectify deficiencies. However, the committee stressed the need for principled relationships and comprehensive governance reforms. Ethiopian Electric Utility's financial strain, accounting for a major portion of corporate debt, underscores broader economic challenges. Strategic initiatives aim to address financial woes through revised tariff rates and revenue diversification. But, committee members remain skeptical, urging deeper scrutiny and community engagement to safeguard assets and modernise service delivery.

A recent entrant into banking sector, Ahadu Bank has embarked on a journey marked by potential and challenges, despite facing significant financial strains and reporting substantial losses in its inaugural year. Ahadu launched operations in June 2022, has rapidly expanded, establishing 75 branches where 667 employees were deployed in its inaugural phase. It began with a strong capital base, boasting 503 million Br in paid-up capital, mobilised from 9,600 shareholders. A proactive approach to growth, as evidenced last year when shareholders voted to increase the paid-up capital to five billion Birr within three years, shows a robust start. However, the Bank's aggressive expansion has also led to soaring expenses, contributing to its losses. To overcome these, Ahadu is shifting its focus towards digital banking and strategic partnerships. By leveraging technology and collaborating with fintech companies, the Bank aims to enhance operational efficiency and attract a tech-savvy customer base. While the banking industry as a whole has experienced robust growth in loans and deposits, regulatory constraints such as loan growth caps have limited revenue opportunities for banks like Ahadu. Nonetheless, the Bank remains committed to navigating these challenges through diversified investment strategies and a long-term sustainability plan outlined in its five-year strategic plan.

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