Risk analyst concerned about Ethiopia eyeing the capital market – capacity to pay question kicks in

7 Nov


By Keffyalew Gebremedhin – The Ethiopia Observatory (TEO)

With Kenya’s success this year in raising two billion in eurobonds, it is said, among others, it’s the appetites of Ethiopia and Tanzania that have been whetted the most. The two nations are aiming to do the same, a syndrome that NBC Africa dubbed as ‘the bond crave’.

“There is a growing investor interest in Ethiopia generally” however, says Ethiopia Risk analyst at Rand Merchant Bank in Johannesburg Ayalnesh Tafesse. This has come with recognition of Ethiopia’s economy as one of the fastest growing, further strengthened by the confidence reposed on it by the three credit rating agencies – Fitch, Standard & Poors and Moody’s

In the circumstances, Ethiopia’s announcement of its plan to issue eurobond is merely seen by financial experts as a classical case of needs meeting opportunity, as the analyst put it.

When Ethiopian officials made public their plan and the huge investments Ethiopia’s ambitious infrastructural development plan requires, evident has become the strength of the country’s desire to repeat Kenya’s success in issuing international bond that has enabled it to raise huge capital.

There is interest in Ethiopia’s eurobond plan also on the part of investors; they consider it vital sign toward liberalization, which has made them pin their hopes on benefiting from an economy without constraints.

Unfortunately, Ayalnesh pointed out, Ethiopia is only taking baby steps in liberalizing the economy and investors are concerned about the many barriers that still are out there. This has also been longstanding view held by the IMF and World Bank.

Ayalnesh’s concern is not the size of the debt that comes on the back of bonds, but Ethiopia’s capacity to pay its debts in foreign currency in condition where the country’s private sector plays an insignificant role in economic growth. That said, she suggested that, in a region notoriously exposed to unkind climatic changes and cycles of drought, Ethiopia would be better of ensuring first good management and sustainability of the nation’s export and foreign exchange earnings.

Without this, Ayalnesh warns, going to the competitive international market would not be as favorable as that of the loans the country has been taking from international financial institutions on symbolic rates and over terms of long years of repayment.

From bankers perspective, she underlined that, given the current reality, Ethiopia’s capacity to pay commercial debts is in doubt, which within two years is estimated to reach 46 percent. Ethiopia is planning to finance a plethora of ambitious infrastructure projects the analyst has reviewed, the risks of which she has assessed.

As it happens, right at this moment Ethiopia finds itself in the throes of forex crunch. Reportedly, with initiative originating from the Governor of the National Bank of Ethiopia (NBE), the government in its usual tendencies has literally made it extreme crime to be found holding dollars by individual citizens. This is its way of scaring those citizens that directly receive dollars from family members abroad into going without let to the bank and convert them to local currency. That perhaps the NBE may consider an extension of its foreign currency mop-up operation, a refill of its empty coffer.

Follow the interesting interview on CNBC Africa.

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