Welcome to Addis Fortune's digest on critical business and economic issues of the past week. This edition covers from innovative strides in fintech to the mounting pressures on sectors like horticulture and agriculture. Policymakers are pushing for reforms sought at long-term stability, but businesses are feeling the strain of immediate impacts. Whether it is the launch of a regulatory sandbox by the Ethiopian Capital Market Authority or the ongoing struggles faced by insurance companies amid soaring inflation, these five stories capture the critical changes that are shaping the country's economic future.

The Ethiopian Capital Market Authority is set to introduce a regulatory sandbox that will allow financial technologies with disruptive business models to operate with temporary licenses. It is expected to be live in a couple of weeks providing a space capital market service providers can operate in a controlled environment. A sandbox is an isolated testing sphere where users can execute programs without impacting the system they are operating under. Proponents of the regulatory sandbox believe it provides a time-bound and controlled space where innovative firms can test their products with consumers, ensuring appropriate safeguards are in place. They argue that the environment helps regulators identify the requirements needed to support innovation while assisting firms in understanding their regulatory obligations. Partnerships between financial institutions and technology providers will be facilitated, and temporary licenses will fasten testing.

The National Bank of Ethiopia's recent move has stirred concern within the horticulture industry as exporters are now required to convert half of their foreign exchange earnings into Birr within a month. The directive is seen as an impediment to business operations with industry leaders, including Tewodros Zewdu, president of the Ethiopian Horticulture Producers & Exporters Association, expressing concerns that the tight timeframe does not align with the logistical complexities of the industry. The directive, part of a broader foreign exchange overhaul effective from July 29, 2024, aims to increase liquidity in the forex market. While central bank officials defend the regulation as necessary for economic stability, the industry fears it could disrupt the importation of essential inputs, crucial for maintaining operations. The ongoing discussions between industry representatives and National Bank of Ethiopia officials could lead to a revision of the policy, reflecting the sector's unique operation.

 

The Development Bank of Ethiopia has come under fire for its decision to discontinue funding for rain-fed agricultural projects. At the Ethiopian Agricultural Investment Forum 2024, investors and agro-technology providers expressed concerns that the move could stifle the growth potential of Ethiopia's agricultural sector. While Development Bank of Ethiopia President Yohannes Ayalew (PhD) clarified that rain-fed agriculture is not entirely excluded from the bank's offerings, the decision to focus on irrigation-based projects has raised questions about the bank's commitment to supporting the agricultural sector. With key export commodities such as spices and oilseeds relying heavily on rain-fed farming, investors are urging the bank to reconsider its approach.

Three weeks into the floated exchange market, policymakers are hailing the move as a crucial step towards economic stability, while businesses voice concerns about market volatility during a discussion. Officials believe the reform will address currency shortages, boost economic growth, and create a more transparent market long term. Given the government's lack of budget to finance investment, they believe the new reform is expected to enhance the private sector and attract foreign direct investment. With the immediate effect, however, importers and manufacturers are facing difficulties due to increased costs, supply chain disruptions, and liquidity constraints. While some experts see long-term benefits for exporters, others warn of short-term shocks and the need for structural reforms.

With inflation soaring and spare parts prices skyrocketing, insurance companies are struggling to meet customer claims amid increased accident rates and higher repair costs. This, coupled with intense competition and regulatory issues, is creating a perfect storm for the sector. Many companies are facing losses as they struggle to balance customer satisfaction with financial viability. Intense competition is forcing insurers to offer lower premiums, impacting profitability while weak oversight and outdated regulations are hindering the growth. The industry remains heavily reliant on motor insurance. Experts emphasised the need for diversification pointing out that the challenges go beyond rising costs, citing bureaucratic procedures, delays in re-evaluations, and fraudulent practices as other issues plaguing insurers.

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