Welcome to Addis Fortune's weekly digest of major economic and business news. This week's headlines cover a scathing report from the Auditor General exposing budget chaos, an ambitious capital upsurge redefining monetary policy and price stability, the Ethiopian Maritime Authority embarking on pivotal logistics policy changes, a green legacy poised for billions in funding, and Djibouti's objections to port ranking metrics that fail to reflect reality.

Parliamentary tensions soared last week following the Federal Auditor General's report revealing extensive financial mismanagement across federal agencies. With a near trillion Birr budget pending approval, the call for stricter oversight and more responsible governance has never been more critical. However, Auditor General Meseret Damtie’s findings revealed 14 billion birr in unaccounted allowances and returns, 19 billion birr in unspent budget across 101 agencies, and only 79 out of 169 agencies receiving unqualified opinions. The Information Network Security Administration was the only federal agency that successfully recovered nearly all its outstanding amounts. The absence of most cabinet members was a troubling trend that undermined the federal legislature's oversight capabilities. Particularly concerning was the performance of the Ministry of Innovation & Technology, led by Minister Belete Molla which failed to recover 70 percent of over 363 million birr in collectables and faced major public losses due to delays in projects like science cafes and digital transformation initiatives. Findings revealed some institutions operate outside their legal mandates. The Immigration & Citizenship Services collected unauthorised fees and outsourced services to an unregistered company, Viditure, at a high cost to Ethiopian expatriates. Immigration & Citizenship Services officials violated public finance administration laws by opening bank accounts under individual names to collect 17 million birr in fees. Field inspections also uncovered the use of offensive language, citizen mistreatment, and even physical assaults. 

 

A bill before Parliament proposes a dramatic increase in the central bank’s capital to 20 billion Birr, nearly 40 times its current amount. If passed, the bill mandates that the federal government ensures half of this capital remains consistently paid. It also caps the National Bank of Ethiopia’s monetary liability at five percent of its reserve fund. This move accompanies a policy shift emphasising interest costs, reflecting the central bank's anticipated active role in open market operations and its preference for using interest rates as a primary monetary policy tool. Established in 1963 with a capital of 10 million Birr, the National Bank of Ethiopia has seen its capital grow fivefold in nearly 50 years. Now, experts believe the proposed capital enhancement is necessary due to increased costs associated with the Bank's new policy direction. Draft proclamations before Parliament aim to grant the central bank enhanced powers to protect depositors and creditors from financial institution collapses, signalling an ambition to become the chief authority on monetary policy issues. Governor Mamo Mihretu, the ninth chief of the Central Bank in six decades, advocates for enhancing the National Bank of Ethiopia autonomy through new legislation to separate several functions from the executive branch. He is steering the ship towards autonomy, planning to curb direct government borrowing.

A new bill proposing the establishment of a Green Legacy Fund potentially worth billions of Birr, was presented to the Ethiopian parliament last week. Co-authored by the Ministry of Finance and the Ethiopian Forestry Development, the bill aims to provide sustainable domestic financing for green economy initiatives and the restoration of degraded land. Managed by the Climate Resilient Green Economy Facility, a 13-year-old initiative under the Ministry, the fund is set to be up to one percent of the federal budget. Officials believe this fund will support environmental projects. Mikias Sime, the program coordinator, emphasised that it will demonstrate the government's commitment to climate change projects and attract international financing. Effective coordination among stakeholders is crucial to properly allocate resources, as the financing has been disorganized thus far. A digital platform, upgraded from an aid management system, will track the progress of climate projects across Ethiopia. The Fund's daily operations, including project approvals and strategic decisions, will be overseen by a steering committee chaired by a Ministry of Finance official and a deputy from the Ministry of Agriculture. Regional states can request funding through the Ethiopian Forestry Development, with final approval granted by the Ministry of Finance if the regions provide matching funds.

The Ethiopian Maritime Authority is launching a major overhaul of the logistics sector aimed at streamlining operations and attracting foreign investment. A recent study by a UK consulting firm identified critical bottlenecks hindering growth, including outdated regulations, lack of transparency, and limited opportunities for foreign investors. The study recommends stricter regulations for market entry and adopting international standard trading conditions. Another area slated for improvement is cargo tracking. The absence of a comprehensive tracking system creates information gaps and hinders efficient logistics management. The study recommends the government implement a digital "Port Community System."Pre-clearance and transit delays at the Djibouti ports persist. Ethiopia's efforts to open the logistics sector to private participation face restrictions due to a 20-year-old agreement with Djibouti, which requires revision. With the bilateral agreement on transit, transportation, operation modes, documentation clearances and tariffs set to be revised in a couple of months, industry insiders are anticipating positive changes.

Djibouti officials have raised objections over "inconsistencies" in the evaluation metrics used in the World Bank's recent port ranking. Djibouti's ports dropped significantly, from 26th place last year to 379th out of 405 ports this year. This prompted high-level discussions with the ranking team as officials expressed immediate discontent upon the report's release. Nicolas Peltier-Thiberg, global director of transport at the World Bank, met with Ilyas M. Dawleh, minister of Economy & Finance, and Aboubaker Omar Hadi, president of the Djibouti Port & Free Zones Authority. The delegation inspected container handling facilities at the ports and planned further technical exchanges for September. Ilyas reiterated Djibouti's disagreement with the recent rankings, criticising the inclusion of the marine Automatic Identification System as a relevant factor in evaluating port performance. He maintained that Djibouti's ports maintain high levels of productivity, effectiveness, and efficiency comparable to top global ports. The World Bank acknowledged the discussions with Djibouti officials, attributing the decline "largely to external factors independent of the port." These factors include security concerns in the Red Sea due to missile attacks at the Bab-el-Mandeb strait and increased authorization procedures since last year.

 

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