Ethiopia’s borrowing has primarily focused on infrastructure development, particularly in transport and energy. Projects such as highways, railways, and power generation facilities aim to stimulate economic growth and improve trade connectivity. However, delays in project execution have hampered progress. As of June 2024, undisbursed loan balances amounted to $7.38 billion, reflecting inefficiencies in project implementation and administrative challenges.
The 51st African Insurance Organization (AIO) Conference and General Assembly recently took place here in Addis Ababa, Ethiopia, with a focus on the impact of Africa’s growing debt burden on the insurance industry. On the occasion, the governor of the National Bank of Ethiopia Mamo Mihretu emphasized that addressing sovereign debt is crucial to building a vibrant and resilient insurance industry in Africa.
He emphasized that many African nations are undertaking critical economic adjustments supported by international financial institutions and debt restructuring efforts. However, he warned that success requires strong international coordination amid rising global uncertainties.
“For insurers Sovereign debt levels are not just numbers on balance sheet, but they shape investment strategies, asset liability matching, and, of course, consumer confidence as well.” acknowledged the governor.
Addressing debt challenges therefore, integral to building a vibrant and resilient insurance industry. With respect to Ethiopia, Mamo outlined the country’s ongoing Homegrown Economic Reform Agenda, which aims to restore macroeconomic stability and foster private sector-led growth. Ethiopia’s reform efforts enjoy support from international development partners. The IMF has committed $3.4 billion to support the country’s medium-term program, while the World Bank has pledged $3.75 billion in budgetary support. These funds aim to close a $10.7 billion financing gap projected for 2024/25 to 2027/28.
Central to this agenda is the commitment to strengthening the private sector as engine of growth, innovation and job creation he said, adding “we are working to build an open and competitive and transparent economic environment where private investment, domestic and foreign as well, can thrive.” The increasing role of the private sector in the economy can create a self- sustained economy more governed by competition and supported by innovation and creativity which utilized the most skilled professionals who think out of the box and unleash their potential to bring a difference.
In line with these, the government took various measures to support the home grown economic development program focusing on addressing the macro–economic imbalance including restructuring the economy, mitigating unemployment and inflation, adjusting the overvalued birr-Dollar exchange rate into managed flouting rate, tackling illegal trade, encouraging Diaspora Ethiopians to send remittance in the formal channel through providing incentives and others.
He further said that, the reforms also intended to modernize the financial and insurance sectors, align them with international standards, and create a transparent and competitive environment for investment.
According to Mamo, Ethiopia’s reduction in its debt-to-GDP ratio is a notable achievement, but the road ahead is fraught with challenges. Expanding the export base, improving project execution, and strengthening debt management practices will be critical for maintaining fiscal sustainability. The Ministry of Finance’s report underscores the importance of aligning borrowing strategies with broader economic goals. With careful planning and continued international support, Ethiopia has the potential to leverage its debt for growth while maintaining discipline. However, without addressing structural vulnerabilities, such as low export revenues and currency risks, the progress made could face setbacks. He also highlighted the growing impact of artificial intelligence (AI) in insurance, calling it one of the industry’s most transformative forces.
The governor stated that, AI driven insurers are using these technologies to offer tailored solutions by analyzing user data such as hedge metrics and lifestyle habits, to dynamically adjust policies and pricing.
African Insurance Organization /AIO/ President Patty Karuaihe-Martin on her part said as African countries are navigating complex economic challenges, it’s essential to understand the implications of the insurance industry.
Citing figures from the World Trade Organization (WTO), she noted that Africa’s debt is rising at an alarming rate, placing enormous pressure on developing economies. She warned that when debt grows too fast, it can have severe consequences from reduced investment in essential services to growing inequality and underdevelopment.
The current international financial system perpetuates inequality and developing countries face higher borrowing costs and limited access to affordable financing, trapping them in a vicious cycle of debt and underdevelopment. She further said that the unbearable burden of debt to some poor countries pushed them to stay in vicious cycle of poverty. The generational long debt service critically harms their effort to eradicate poverty and to move forward.
She also cited several AIO initiatives aimed at strengthening the industry’s resilience, including the AIO Chartered Insurance and Certification Program, focusing on leadership, micro-insurance, agri-insurance, insure-tech, and innovation.
Looking ahead, she called for stronger collaboration across the continent and welcomed efforts to build a harmonized regulatory framework under the African Continental Free Trade Area (AfCFTA) to enhance intra-African insurance cooperation.
Though many countries have become signatories to the AfCFTA they have failed to live up to their pledge because showed reluctance to sign the protocol to implement the agreement. Many agreed that the delay of implementing the agreement is that the countries fear of losing revenue obtained from custom and tariff because of the free trade agreement which allow them to sell their products freely without any duty in the countries which signed the agreement. Some also argue that while the agreement put some countries with better economic performance in advantageous position, others might be hurt.
She also said that, Ethiopia offers us a unique platform to explore solutions and guide our governments toward policies that improve the standard of living and protect the financial health of our people.
Yared Mola, President of the Association of Ethiopian Insurers, said the conference comes at a critical time as African insurers face economic uncertainty while pursuing growth and innovation.
The event brought together insurance professionals and policymakers from across Africa to discuss solutions for sustainable development amid fiscal challenges.
According to study papers, the insurance sector is facing various challenges and among others, lack of qualified insurance professionals, retaining existing customers, existing of price war among companies and increasing number of motor vehicles accidents are the current challenges of the insurance industry in Ethiopia.
On the other hand the existing economic growth in the country, large number of private and government project implementation, high foreign direct investment and the current construction boom in the country are the opportunities for the insurance industry.
The study paper presented by experts gives recommendations to overcome the challenges and exploit the existing opportunities of the insurance industry in Ethiopia. Currently the government owned Ethiopian Insurance Corporation (EIC) increased its position as the dominant insurer at 44 percent of total gross written premiums in 2022 compare to 42 percent in 2007 Estimates suggest that Iddir (informal community insurance initiatives) continue to be used by about 80% of the population in 22-Feb-2024.
The Ethiopian Insurance Corporation (EIC) was established in 1 January 1976 by proclamation No. 68/1975 by emerging takeover of the thirteen nationalized private insurance companies liabilities and assets, with birr 11 million (USD 1.29 million) paid up capital. It is state-owned and profitable organization.
In Ethiopia, the insurance sector is an integral part of the financial sector in particular and the economy as a whole. Its role in assisting the country to achieve its macroeconomic stability and growth objectives is undeniable.
Based on the investigation result of the study shows that age of the company, company size, managerial efficiency, large ratio, lose ratio, premium growth and inflation rate are statistically significant and have an impact on the profitability of insurance companies in Ethiopia. 18 insurance companies which provide both life and non-life insurance service are operational. Of the total branches, about 54.6 percent of them total are situated in Addis Ababa.
BY ABEBE WOLDEGIORGIS
THE ETHIOPIAN HERALD THURSDAY 5 JUNE 2025
