Today’s Herald guest is Getachew Beshahwred who is a seasoned expert in finance with special focus on insurance. He graduated from Addis Ababa University (AAU) 40 years ago with Bachelor’s Degree in Accounting. After graduation he has taught at AAU for three years until he went to England where he pursued MBA. Later he became a chartered accountant with institute of accountants in England and Wales.
After 30 years in England, he returned home heeding to the call by the government of Ethiopia for the Ethiopian diaspora to invest in various sectors. He has now established his company named Bruh Finance that provides training, workshops, and leadership programs in the fields of insurance, banking, finance and capital markets which is dedicated to delivering professional development programs to the Ethiopian finance sector.
The Ethiopian Herald had discussed with Getachew Beshahwred, on how the Ethiopian finance sector including bank and insurance companies could perform better especially how they can compete and survive with foreign banks who are now allowed to operate in Ethiopia in accordance with the country’s new Macro Economic Reform. Enjoy the conversation!
The economy has been growing significantly in the last twenty years. If there is peace in the nation, the opportunity for growth is very significant. At this stage, finance sector is very small as compared to other nations; but there is huge opportunity and huge potential to grow more
What role does the finance sector play in the economy of a country?
Our economy is merely based on agriculture and to some extent with industry. Finance sector has been contributing significantly in the last 20 years and as finance sector provides the resource that is actually needed for a new project or expansion. Without finance it is impossible to grow, thus finance is the engine as long as sector is providing finance in an equitable manner to all sectors of Ethiopian economy. The bank and insurance companies employ a lot of people and contribute significant amount of taxes. Thus, it is critical for development of the nation as a whole and peace needs to be maintained to grow significantly.
How is the situation of the finance sector in Ethiopia at this moment?
The finance sector activities or services including insurance are restricted to cities and major towns of Ethiopia and this need to be changed. The number of products also needs to increase. Currently, we have 31 banks in the nation that are small in size as compared to those in other countries. These banks are also limited to main cities and towns. The access to finance for majority of Ethiopian people and small business is clearly very restricted. There has to be financial inclusion. So the bank should be able to provide finance to rural parts of Ethiopia. They need to increase their activity significantly. Since foreign banks are invited to operate in Ethiopia they have to be able to compete. But with their current status, they would face difficulty to compete. First they need to increase their capital base and this could be achieved by new infusion of capital or from mergers as recently government has indicated that various banks needs to merge together so that they can have a combined strength. They need to increase their capital base, invest more in human capital which they actually can’t do enough now, improve technology to able to compete with foreign banks; otherwise they will not withstand competition coming from abroad.
What are the strengths and weaknesses of the finance sector in the country?
Ethiopian finance sector whether it is bank or insurance is very small; but they are growing. To some extent the will and capacity to grow finance is there. If they invest technology and human capital the industry can grow significantly. Ethiopia is home to 120 million people and growing. The economy has been growing significantly in the last twenty years. If there is peace in the nation, the opportunity for growth is very significant. At this stage, finance sector is very small as compared to other nations; but there is huge opportunity and huge potential to grow more.
How is the insurance industry operating in Ethiopia?
As compared to the banking industry, the insurance industry in Ethiopia is small in size but it is actually growing at significant rate. Especially their interest and attitude towards education and training is very promising. The landscape of insurance is changing. With opening up of financial sector for foreign competitors the need for insurance is growing significantly. Insurance company needs to come up with new products, and invest on new technology for them to be able to reach rural sites of Ethiopia. At this moment most of the insurance are located in cities. But they should be able to reach the rest of Ethiopia. For this, technology is very important like the mobile technology. But the insurance activity is very promising.
What are the major setbacks to the insurance industry here in Ethiopia?
The first one is skill manpower. There is no doubt about that one. We have to able to train a lot of professionals. A few months ago, we [Bruh Finance] were able to graduate 79 insurance professionals with certificate in insurance from the chartered insurance institute of London with the active participation of Association of Ethiopian Insurers. Most of them are higher managements from Ethiopian insurances. And currently we are training 50 insurance professional are drawn from almost all insurance industries in Ethiopia with a diploma program. This is expected to take eighteen months at the end which doubles the number of diploma holders in the country. The need for skilled man power is a big issue and we are closely working with Association of Ethiopian insurers to improve that one. The next one is insurance companies need to invest in technology. The other one is awareness. We have to make people aware of the advantage of having insurance. Not everybody can afford to have insurance; but it is possible to get some insurance especially that of health and life insurance and even insurance for farmers.
By now, we have 18 insurances companies in Ethiopia; they have been doing a lot during the last few years, and their growth is showing improvement but not enough.
The government of Ethiopia has launched a new macro-economic reform which liberalizes the economy and the finance sector. How does it affect the finance system especially insurance industry?
To some extent many of the changes in the economy are positive. Recently the government’s decision to make National Bank of Ethiopia more or less independent where they do have the authority and independence to manage the economy especially to control inflation that is more elastic the base of the model of bank of England in London which is actually good. The establishment of Ethiopian Capital Market Authority and the Ethiopian Security Exchange that will start operation soon are actually positive. When we come to insurance sector, it is doing well and regulated by National Bank of Ethiopia and there is tendency for insurance sector to be second to banking sector. The insurance sector has been lobbying the government. They have been staging strong campaign for the regulation to be issued by NBE. That has been granted and work is actually being done. The government would be able to give more attention to insurance sector but at the same times we have to make sure that it is a proper regulation; we have to have a regulator which would make sure that customers are protected and there is a fair competition in the industry. We want the competition and the consumers’ interest should also be protected. This regulator has to balance insurance industry to grow more and to be competitive and protecting consumers as well.
The country is introducing a capital market. The ESX is launching its activities recently. How does that contribute to the development of the finance sector including insurance industry?
When we see capital market or security exchange, how does it help? It can create wealth for individuals as they can buy shares, they become owner and they can get dividend each year. After some years they can sell them for profit. They can buy bond. If they buy bond on security exchange at the end of every six months or years they can get interest and after a matter of years whenever you want to sell it , you can sell it after years and can get profit thereby create wealth. When you go to the capital market, there are service providers; license is going to be given by capital market authority. So it creates job opportunities. When it comes to companies like bank or insurance they will be able to be listed in stock exchange. The ones to be listed first on stock exchange are banks and insurance. So the banks need to raise more capital in order to compete with foreign banks. The banks can raise more capital through security exchange. By being listed it will help the Banking sector.
The bank sector also can do additional service as they can provide investment advice. And they become investment banks. The main income of banks and insurance is interest income. Their 90% of income and profit comes from interest. But they need to diversify. These capital markets by being investment banker or by doing advisor or broker or dealer they can generate additional income. The same applies in insurance companies; they can be listed and raise more capital and they can provide additional services especially investment advice to their clients. Even the government can now sell bond. More or less it requires banks insurance companies to buy bonds. The government can raise capital by selling bond in the market itself. Thus, banks and insurance companies will not be forced to buy bonds. They would have more cash available for them to provide finance to companies and individuals. So government can borrow and invest on roads, transport, education and hospitals. To conclude this, stock market helps individuals in creating more wealth, job opportunity and can help corporations, banks and insurance company to be listed and raise more capital.
What will be the role of allowing foreign companies in the finance sector in Ethiopia?
At this stage the government is going to allow foreign banks to operate in Ethiopia. They can acquire shares in local banks and they could establish a subsidiary and open branches and some extent take over local banks. This has an advantage as far as it is properly managed. We don’t want foreign banks to take over the local ones because a bank is critical sector of the economy; we need our local banks in our economy. But at the same time we need these foreign banks to come to Ethiopia so that there is a reasonable amount of competition which is going to good for consumer and economy and to some extent it would be a good opportunity for Banks as this could allow our local banks to work with the international banks; they could bring in new technology and skilled manpower that accompany through competition. And bank industry is required to invest more in technology and skill manpower as well as to improve the sector significantly. But the government has not clearly indicated when to allow foreign insurance companies to Ethiopia but there is hope as the government is opening up the economy for so many sectors like wholesalers and retailers.
As an expert in finance with decades of experience and as a consultant what are you doing to improve the finance sector in the country?
The main objective of Bruh Finance is to link Addis Ababa with rest of financial cities including London and others around world. The examination, certification is from London which is an international qualification. The idea is to contribute towards the development of finance sector in Ethiopia with introduction of security exchange and opening up the market especially private sector for foreign competitors. In addition to this, we will take senior management executives and board directors of banks to London, Cambridge and soon will take them to New York, Washington DC and Johannesburg and thus helps senior managers and directors to have an understanding how the rest of the world manage and lead bank and insurance industries. We work with international professional institutions for insurance we work character insurance institute in London.
How are you working in collaboration with other stakeholders and partners like the government and professional associations?
We work with banks and insurance companies, Ethiopian Bankers Association and Association of Ethiopian Insurers. The cooperation we get from Association of Ethiopian Insurers is brilliant. We have certificate program and recently launched diploma program.
Up next we are going to start training in actuaries with institute and faculty of actuaries in London. Ethiopia doesn’t have any one with qualification in actuaries as a result we have to do more. At end of each year when insurance companies produce account and when banks prepare account they need certification from actuaries. But there is none in Ethiopia. Therefore what they actually used to do is they send accounts to Kenya and South Africa. This requires payment in foreign currency. What we are going to do is the association will start training in actuaries. On average, it takes three to four years and requires a lot of investment.
We not only need insurance association help but also we need the help of Ethiopian Bankers Association. Banks also will be beneficiary from this and we also need the help of the regulatory body, the National Bank of Ethiopia (NBE).
Training is not an expense, it is an investment. If you want actually to be successful, you have to have skilled human resource. There has to be change of attitude. This should be seen as a benefit to employees and not an expense to the company; it is actually an investment. Thus, bank and insurance need to devote as much funding as possible on training. They have to have a change of attitude.
Thank you very much for your time!
Thank you!
BY MISGANAW ASNAKE
THE ETHIOPIAN HERALD SATURDAY 24 AUGUST 2024
