BY ABEBE WOLDEGIORGIS
In Ethiopia, unlike other sectors, the rate of financial sectors profit is increasing. Even though the nation finds itself in sever socio-economic crises and faced external pressure, the growth is still continued. Particularly, the banks similar to their previous achievements in this budget year registered significant profit. According to sources, 16 private banks registered profit of 40 billion Birr before tax in the budget year. Commercial Bank of Ethiopia also announced that it profited 27.5 billion Birr. This profit is more than 30 percent on average. On the other hand, the nation’s total economic growth is planned to score 6.6 percent and it is 100 percent achieved.
Teklewold Atnafu is an Ethiopian politician who governed National Bank of Ethiopia for 14 years and currently, he is working as the chairperson of the board of the Commercial Bank of Ethiopia. While he was reflecting the banks’ tremendous achievement in this budget year, he said that despite the nation has been facing various economic crises, it should be understood that in Ethiopia still the economy is moving even growing and at this moment registering 6.6 percent economic growth is remarkable. The achievement ensures the financial institutions growth. Both the economy and the finance sector have positive correlation in which one needs the other. The finance sector came across various upside downs in the last four years and yet it could withstand the challenge.
Not only had these, with regard to boosting investment, the nation scored good achievement. The export sector itself after many years of stagnation, it has been reviving and increased garnering hard currency in the last three years. Last year, it obtained 3.6 billion Dollar and this year again it earned 4.2 billion Dollar. When export grows, examining where it comes from is essential. Banks play pivotal role for the enhancing of export because, exporters obtained loan from banks to run their business. Products pass through value chain from Producers up to the consumers and actors play their role by borrowing money from banks. Most businessmen in Ethiopia run their businesses by borrowed money instead of investing their own savings. Therefore, it is normal that when the export grows the banks provision of loan also increases.
When actors from lower level up to exporters gain profit, the banks also ultimately gain too. Thus, banks’ benefit increases equally with the increasing of income from export. The rising of remittance income also benefits banks.
As to Teklewold, in this budget year, the remittance income rose close to 6.8 billion Dollars. This is huge amount. The money transfer also brings various positive impacts and the bank uses in two ways. It earns commission from transactions and secures hard currency which is going to be allotted to importers. Importers are also able to import goods and supply to the wholesalers. In the meantime, the wholesalers again borrow money from the banks.
The retailers also borrow money. Therefore; the whole process enables banks to make more money. The economic growth necessitates the growth of import. Last year, the import grew by 20 percent and this year it grew by 25 percent. Had there not been growth and demand, there would have not been import in such scale. In fact, import consumes more hard currency but it is a signal for growth. It is not only basic needs and other commodities imported, there are also capital goods and other inputs utilized in other the economic sectors. There are also imported goods vital for supporting the economy.
In Ethiopia, there are about 5,900 imported items but the nation exports less than 900 products including injera (Ethiopian flat bread) and other commodities. That is why the import trade volume is lower not only in terms of money but also the variety.
However, the import and export commodities also help to increase the velocity of financial transaction. In addition, it injected money into the economy. As to him, in Ethiopia, there is on average more than 10 percent gap between saving and the investment demand in and if the total investment rate is 30 percent of the Gross Domestic Production, the amount of the aggregate saving will be nearly 20 percent. If the aggregate investment is nearly 31 percent, then the Gross Domestic Production will be 11 percent.
The gap between investment rate and saving is 11 percent which is high. Therefore, more than the amount it produces here, the country imports 11 percent of the GDP from abroad through borrowing loan from partners and multinational corporations. 80 percent of what the nation produced is consumed here and only 20 percent of it is saved for investment. In order to raise the Ethiopian economic growth by 6 and 7 percent, 30 percent of the Gross Domestic Production must be invested. To accelerate the growth, various commodities must be imported. Therefore, it can be concluded that if import is declined growth also will fallen.
Therefore, importing is the reflection of the healthy economic growth. The imported items will be utilized as input for industrial and agricultural production in which the output will enhance economic growth. With regard to food, Ethiopia imports 25 percent of its demand from abroad.
The economy can cover only 75 percent of the nation’s food demand. To meet the remaining percentage, there should be hard currency. But most of the time the supply side of the hard currency is lower than the demand. Therefore, to close the gap the government might resort to secure loan in the form of loan and grant from partners.The increment of food consumption is not witnessed but the increment of imported goods are indicators of growth. Therefore, such huge transaction is closely related with banks that is why banks are gaining a lot.
As to Teklewold, if the economy is collapsed, the banks will fail earlier than other sectors. Because if banks are bankrupted no one save money. Customers rather make queue to withdraw their money. Secondly, the borrowers do not refund the money in which the loaned money will be liquidated. Therefore, in any circumstances, if the economy is collapsed the first victim will be the banking sector.
Regardless of their ownership, be it private or public banks, the government should monitor their situation through the National Bank of Ethiopia. Banks should provide loan to sectors such as agriculture, manufacturing and others for their own sake because when the economy is growing they will benefit more. They provide more loans to the trade sector and others. Both public and private banks allocate the money for short term loan because 80 to 90 percent of their profit comes from such scheme. They earn profit in billions Birr. But to sustain their existence they should focuses on loan scheme which boosts the nation’s aggregate economic growth.
As to Teklewold, as the nation is immersed in war and suffers from drought and the impact of COVID-19, it is unbelievable that the nation’s economy grew by 6.6 percent. Reacting to this statement he said that, the war did not bring repercussion as it was expected. But if conflicts flared in various parts continue, the economy might be critically affected. The war was broke out in one part of the country not in all parts of the country. Even though the war was broke out working in various direction was continued.
Nevertheless, the war heavily consumed the nation’s hard currency and budget, incurred human causality and displacement. But the business was continued in most parts of the country that is why banks made profit a lot. They collected deposited money tremendously. Even though still the nation has not fully recovered from the economic turmoil, the Commercial Bank of Ethiopia could collect new 155 billion Birr in the form of deposit. In addition, it recollected 120 billion Birr from borrowers, it was learned.
THE ETHIOPIAN HERALD THURSDAY 18 AUGUST 2022
