By Financial Times,
EVERY country tapping the global sovereign bond market details the dangers investors face in its prospectus, often in a boilerplate section enumerating possible problems – such as fiscal deficits or taxation issues – that is largely ignored.
But the document sent by Ethiopia to international investors ahead of its foray into the global sovereign bond market is some what different. Far from a boilerplate, it includes a list of unfamiliar hazards, such as famine, political tension and war.
The document, seen by the Financial Times, is a sobering reminder of the risk of investing in one of Africa’s less developed nations. With gross domestic product per capita at less than $550 per year, Ethiopia is the poorest country yet to issue global bonds.
In the 108-page prospectus, issued ahead of its expected $1bn bond, Ethiopia tells investors they need to consider the potential resumption of the Eritrea-Ethiopia war, which ended in 2000, although it “does not anticipate future conflict”.
There is also the risk of famine, the “high level of poverty” and strained public finances, as well as the possible, if unlikely, blocking of the country’s only access to the sea through neighbouring Djibouti should relations between the two countries sour.
Addis Ababa, Ethiopia’s capital, also warns that it is ranked close to the bottom of the UN Human Development Index – 173rd out of 187 nations – and cautions about the possibility of political turmoil. “The next general election is due to take place in May 2015 and while the government expects these elections to be peaceful, there is a risk that political tension and unrest . . . may occur.”
But the long list of risks is not deterring investors, as ultra-low interest rates in the US, the UK, eurozone and Japan push sovereign wealth funds and pension funds into riskier countries in search of higher-yielding bonds.
Instead, some investors are focusing on the danger of a currency crisis. Addis Ababa has devalued its currency, the birr, twice over the past five years – by 23.7 per cent in 2010 and 16.5 per cent in 2011 – in an effort to win export competitiveness. Since then, the Ethiopian central bank has managed to slow the currency’s depreciation by intervening regularly in the market.
Addis Ababa has now told potential investors that “it may not be possible for the National Bank of Ethiopia to manage the exchange rate as effectively in the future as it has in the past” because of reduced hard currency reserves.
The country has reserves to cover only 2.2 months’ worth of imports – almost half the 4.3 months it had in 2010-11. “Failure to manage a steadily depreciating exchange rate may adversely affect Ethiopia’s economy . . . [and its] ability to perform obligations under” the bonds, it says.
The prospectus also reveals for the first time details of Ethiopia’s heavy dependence on Chinese loans to finance its infrastructure investment. Credit lines from China and Chinese entities accounted for 42 per cent of all external loan disbursements in 2013-14, and for 69 per cent in 2012-13.
“China has emerged as a key development partner,” the prospectus says, “often providing sizeable financing tied to infrastructure projects undertaken by Chinese firms.” Among those, telecoms groups ZTE and Huawei and a company the prospectus names as China Electric Power have lent Ethiopia more than $2bn over the past few years.
Lazard, the investment bank advising Addis Ababa on financial matters, declined to comment. The Ethiopian government did not respond to a request for comment. Investors said the bond was expected to price later this week at between 6 and 7 per cent.
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Lessons for those who harp on TPLF’s Non-Existing “Economic Growth” and other “Achievements”
By Admasu Belay,
Since it came to power over 20 years ago, the TPLF regime has always declared its achievements in Ethiopia’s political and economic sectors. Everybody knows the state media ETV and its daily nonstop propaganda of how much better Ethiopia has become over the years. Not only that, TPLF has been telling the international community about how it changed and transformed Ethiopia. So much so that it had even deceived some Bush and Obama adminstration officials to believe its lies.
But after over 20 years, the London-based Financial Times (FT) reported today that TPLF has finally admitted its massive failures in Ethiopia.
Shockingly, the TPLF admitted its disasterous policy of landlocking Ethiopia and its economic impact as well as the risk of another famine in Ethiopia.
For the last two decades, this “F word,” was banned by Meles and all his TPLF disciples. In the past, If any foreign officials dared to use the words “famine” and “Ethiopia” in the same sentence, the wrath of TPLF’s “ministry of foreign affairs (mfa)” would attack and humiliate them with endless MFA press releases. Meles himself told Ethiopians to forget about famine and promised that even our poorer people “will eat three times a day very soon.” That promise was made in 1994! Ironically today, the TPLF government sent a document to international investors, admitting another ” risk of famine, the high level of poverty” in Ethiopia, according to the Financial Times.
Not only has Ethiopia lost most of its hard currency reserves but the “steadily depreciating exchange rate may adversely affect Ethiopia’s economy?,” according to the TPLF document.
That is not all. TPLF also admitted the chance of “resumption” of the war with Eritrea and more unrest from “political turmoil” as well as bad relations with Djibouti causing the “blocking of the country’s only access to the sea.”
It is about time TPLF accepted its failures!
Out of TPLF’s top five policy changes since it removed Mengistu regime in 1991, it has now admitted four policies have failed already.
> On Eritrea policy and access to the sea. (ADMITTED FAILURE)
> Avoiding drought and famine (ADMITTED FAILURE)
> On Improving Ethiopian economy/fiscal policies (ADMITTED FAILURE)
> Political reform and democratization (ADMITTED FAILURE)
> Ethnic federalism (No admission yet)
Regarding the 5th TPLF policy, everybody knows TPLF has failed. Soon it will admit this failure too.
In 1995, TPLF claimed its “ethnic federalism” system will empower tribes without dividing Ethiopians. But today, Ethiopia is the most ethnically divided country in the world. Ethnic hatred, propaganda and tensions today are the highest ever in history. Just like the 1990s Rwanda, tribalism has destroyed Ethiopian nationalism and humanity. Sooner or later, TPLF will be forced to admit its last and final failure.
Regardless, Today will go down in history as the day TPLF admitted that it has achieved almost nothing (other that a few tall buildings) since it removed the DERG regime in 1991. It has failed Ethiopia in every way possible. The only reason TPLF is still in power is because Ethiopians are peaceful people, unlike the warmongering and hate-filled TPLF.
For all those EPRDF ruling party supporters and TPLF footsoldiers worldwide, this must be the most embarasssing day. One single TPLF document has virtually dismissed over 20 years of ETV propaganda.