Welcome to Addis Fortune’s latest business and economic digest. In this edition, we cover Ethiopian Airlines eyeing lucrative non-stop routes, the ambitious federal budget highlighting urban glitz against rural grit, bankers scrambling to comply with new regulations, transport authorities planning to build overpasses for the light railway system, and the environmental authority tightening regulations for consulting firms.

Ethiopian Airlines can seize growth opportunities by introducing nonstop flights on underserved routes, according to a recent Airbus study. The study, based on data from December 2022 to November 2023, outlines potential nonstop services for the next two years. It identified 11 routes and highlighted Ethiopian's market potential despite limited nonstop flights. Airbus and AviaDev's joint study revealed five intra-continental and 10 international underserved routes involving Africa. CEO Mesfin Tassew noted challenges like securing air traffic rights but emphasised ongoing efforts to increase flights from Nigeria and Kenya. He acknowledged that geopolitical issues and airport slot constraints can impact route serviceability. The study projects that introducing new nonstop services could lead to increased passenger demand, higher accessibility, and decreased trip complexity. Ethiopian Airlines is open to partnerships and establishing new ventures, despite setbacks in some regions.

The federal government's budget balances ambition with caution for the fiscal year 2024/25 and was unanimously ratified by Parliament. With a budget of 971.2 billion Birr, it focuses on regional subsidies and urban infrastructure while sparking debates on priorities in health, education, and agriculture. Subsidies to regional states contrast with lower funding for other critical sectors, revealing potential misalignments. Experts warn of fiscal vulnerabilities due to borrowing and debt obligations. Urban development received 104.7 billion Birr, overshadowing the 23 billion Birr for agriculture, despite Ethiopia's largely agrarian population. Health and education sectors received modest increases, with health spending dropping significantly from the previous year. Revenue trends show growth through improved tax collection, but the persistent budget deficit raises concerns about debt sustainability. Inflation remains a challenge, impacting living costs and public expenditure.

 

Ethiopian commercial banks are racing to comply with new credit exposure regulations, with the National Bank of Ethiopia's 90-day action plan submission deadline approaching. One of five directives approved by the National Bank of Ethiopia in mid-June, this regulation aims to reduce credit concentration risks by limiting banks' exposures to large counterparties or groups of connected counterparties. Under the new rule, the total aggregate of on-balance sheet items (like loans and advances) and off-balance sheet items (such as letters of guarantee) to related parties must not exceed 25 percent of a bank's capital. Exemptions include credit risks from federal or state governments and state-owned enterprises. The central bank’s first financial stability report, released two months ago, highlighted a high concentration of credit, with the top 10 borrowers holding nearly 23.5 percent of the total 1.9 trillion Birr in loans and advances. The Ethiopian Bankers Association is planning a meeting with commercial bank executives to discuss the implications of the changes.

Transport authorities plan a bridge construction project to enhance the Addis Abeba light railway system and address traffic congestion. Estimated at 1.2 billion Birr, four high-traffic areas—Gurd Shola, CMC Meri, Gojam Berenda, and Saris Addis Sefer—will pilot overhead bridges. These bridges will span 70 metter, stand 5.4 metter high, and be at least four meters wide. Using structural concrete and steel with aluminium finishing, the project is expected to be completed in six months. Additional overhead bridges and underground tunnels are under consideration. The project aims to ease congestion and reduce accidents caused by the current road infrastructure. The city’s Roads Authority and Traffic Management Agency have completed the design and will soon float a bid for contractors, with interest from the China Communication Construction Company. Past efforts to improve transport have faced problems, including a failed bid by Jiangxi due to management disputes. A study by a committee comprising the city's Light Railway Corporation, Transport Bureau, and the Authority aims to address these inefficiencies.

Consulting firms must now obtain competency certificates for environmental assessments of social and economic impacts, as mandated by a new directive from the Environmental Protection Authority, signed by Director General Lelise Neme. The directive requires foreign consulting firms to partner with local firms to gain licensing certification. The directive categorises competency levels into three tiers, from junior to senior, based on experience and degree level, with renewals required every three years. Staff qualifications must include five years of work experience and no legal restrictions. International consulting firms must now form joint ventures with local counterparts and receive a competency license before partnering with companies. Manufacturers, however, remain sceptical about consulting firms' capabilities. Colba Tannery struggles to find specialized firms, while the leather industry faces declining exports and quality.

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