-
Disclaimer: This report represents solely the views, analysis,
and judgement of the Cepheus research team and does not necessarily
reflect the views or opinions of the Fund’s Managing Partners,
Advisors, or Investors.
Recent Developments and Outlook The conflict that has broken out
in Ethiopia over the past few weeks appears—based on recent
developments—likely to be short-lived in its duration and confined
in its geographic scope. Under these circumstances, adverse impacts
on the macroeconomy should be quite limited, in our view,
especially since Government is also pushing ahead with key economic
reforms, including privatization. While we will revisit our macro
projections more fully in early 2021, in line with evolving
developments, this note presents the tentative signs of a V-shaped
recovery that were emerging before the conflict arose and that we
think will gain momentum in the period ahead. Compared to our last
review, we now see somewhat slower growth and somewhat higher
inflation for this year, but expect a still favorable outlook with
respect to the budgetary stance, banking activity, and balance of
payment flows. § Growth: The recently released growth figure of 6.1
percent for 2019-20 shows economic
activity held up much better than expected, as agriculture and
construction (GDP’s two largest components) were largely spared
from COVID shocks. For this fiscal year, we forecast growth of 4.1
percent on expectations of weaker crop yields due to locusts and a
harvest season that is likely to be at least partly disrupted. The
IMF’s projection of zero GDP growth (even pre-conflict) exaggerates
the impacts of COVID-related shocks, in our view.
§ Inflation: The central bank has stopped financing government
deficits since end-June, which is helping control the monetary
sources of inflation; unfortunately, other factors are keeping
inflation at elevated levels (~19%). We now project inflation of 13
percent by mid-2021, and see prospects for single-digit inflation
emerging only in the second half of 2021.
§ Fiscal policy: Even with large government spending increases
this year, the budget deficit is worsening only slightly (from 2.6%
to 3.1% of GDP) and the debt-to-GDP ratio staying below 60 percent
despite multiple shocks. A further deficit deterioration linked to
the conflict seems unlikely given what are already large
allocations in the budget for defence & security. Debt service
relief from external lenders is reducing repayment burdens in 2020
and 2021.
§ Banking: Aided by the recent currency conversion, banks should
see another year of good performance (already apparent in their
first quarter figures), and we now expect 22 percent deposit growth
and 18 percent lending growth. A gradual withdrawal of loose
monetary conditions, a likely uptick in NPLs, and reduced loan
demand in some areas will be key challenges, but these should
moderate—not hold back—overall growth in the sector.
§ Balance of Payments: Helped by double-digit export growth, a
recovery in remittances, improved FDI (presuming privatization),
and large on-going inflows of grants and loans, foreign exchange
reserves should surpass $4bn (3.4 months import cover) by
mid-2021.
§ Exchange rate: The annual rate of depreciation reached a high
of 28 percent in October 2020,
but the Birr has since begun to show a slower pace of change, in
line with moderating inflation and USD weakness vs other global
currencies (both of which lessen the need for Birr depreciation).
As policy efforts are likely to still focus on avoiding any further
over-valuation of the currency, and considering the anticipated
path of inflation from here on, we see the Birr at near 39 per USD
by end-2020 and just under 42 per USD by mid-2021.
Quarterly Macroeconomic Review Third Quarter 2020
RESEARCH & ANALYTICS
Inflation & Exchange rates: End Quarter
Inflation Birr/USDJune 2020 21.5% 34.9
September 2020 18.7% 36.7Dec 2020 18.8% 38.6
March 2021 15.2% 40.1June 2021 12.5% 41.6
Sources: CSA, CBE, and Cepheus projections
ETHIOPIA: Key Macro Indicators
2019-20 2020-21Actual Proj
GDP growth 6.1% 4.1%Investment/GDP 30.8% 31.0%Nominal GDP, Birr
bns 3,374.3 4,124.1 Nominal GDP, USD bns 106.8$ 106.6$
Bank deposits, Birr bn 1,043.0 1,272.4 Bank credit, Birr bn
1,068.8 1,261.8 Deposit growth, % 16.0% 22.0%Credit growth, % 21.0%
18.1%
Fiscal balance, %GDP -2.6% -3.1%Public debt, %GDP 51.4%
54.9%
Exports, USD bns 3.0$ 3.4$ Imports, USD bns (13.9)$ (14.9)$
Service exports, $ bns 4.7$ 4.9$ Remittances, USD bns 4.7$ 5.1$
Grants, USD bns 1.5$ 1.5$ Current account, %GDP -3.7% -4.0%FDI, USD
bns 2.4$ 3.5$ Net Loans, USD bns 1.7$ 1.5$ FX reserves, USD bns
3.2$ 4.2$
Sources: NPC, NBE, IMF, and Cepheus projections
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RESEARCH & ANALYTICS
Disclaimer: This report represents solely the views, analysis,
and judgement of the Cepheus research team and does not necessarily
reflect the views or opinions of the Fund’s Managing Partners,
Advisors, or Investors.
2
Recent Developments:
§ Growth and Activity Indicators: Recently released GDP data
from the Planning and Development Commission show economic growth
held up much better than expected in 2019-20, as the dominant
agricultural and construction sectors were not heavily affected by
the pandemic and COVID impacts were concentrated in the
hospitality, airline, and manufacturing industries—which
collectively make up a relatively small share of Ethiopia’s GDP.
Real GDP showed a 6.1 percent expansion during the fiscal year (in
line with our expectations), reflecting a combination of 4.3
percent growth in agriculture, 9.6 percent growth in industry, and
5.3 percent growth in services. Looking more closely at specific
sub-sectors, growth was strongest in mining (91%), health care
(13%), finance (10%), construction (10%), manufacturing (10%) and
real estate (10%), while areas showing the lowest growth rates were
in hotels & restaurants (2.2%), education (1.8%) and transport
services (1.1%). In terms notable changes from the prior year, the
sharpest declines in growth were witnessed in transport services
(whose growth fell from 21 to 1 percent), hotels and tourism (from
9 to 2 percent), and in construction (from 15 to 10 percent). Last
year’s GDP growth is the lowest seen in 17 years, though it remains
among the highest rates achieved globally (the second highest per
the IMF’s October 2020 WEO database).1 Even if questions were
raised about the reliability of the latest growth figures (given
long-standing weaknesses in the sampling/coverage/deflators used in
Ethiopia’s national accounts statistics), other more easily
measured non-GDP activity indicators now available for the full
year also point to economic expansion in most areas, and in
magnitudes that are not out of line with the reported growth
figure. Most notably, real growth rates were 9% in bank lending,
14% in exports, 12% in ECX traded commodities, 7% in electricity
generation, and 6% in telecom subscriber volumes.
§ Investment: Overall investment fell to near 31 percent of GDP
in 2019-20, a
significant drop from the 35 percent seen the year before and
the 37 percent average of the past five years. This is the lowest
rate in over a decade and parallels drops registered in GDP growth
(from 9% to 6%), in foreign investments (from $3bn to $2.4bn), and
in capital imports (from $5bn to $4.1bn). Some indicators of public
sector investment did, however, show growth in real terms, such as
government capital expenditure (which rose from Birr 86bn to Birr
112bn, a 30 percent increase in nominal terms and roughly 11
increase in real terms). Overall, the drop in private investment
appears to have been more pronounced than the drop in public
investment.
§ Inflation: After peaking at 22.3% in July, inflation has been
on a downward
trajectory for most of the past four months, though it showed a
slight uptick
1 Cross country growth rates are not quite comparable, given
Ethiopia’s July-June fiscal year. Our comparison is Ethiopia’s
2019-20 growth (6.1%) versus others’ 2020 calendar year IMF
projection.
-
RESEARCH & ANALYTICS
Disclaimer: This report represents solely the views, analysis,
and judgement of the Cepheus research team and does not necessarily
reflect the views or opinions of the Fund’s Managing Partners,
Advisors, or Investors.
3
to 19.3 percent in October 2020. On the positive front,
month-on-month inflation has fallen sharply in recent months,
having dropped from 2.9 percent in June (equal to a 40 percent
annualized rate) to just 0.4 percent in October (annualized rate of
only 5 percent). The moderating inflation readings are being driven
by slower price increases for vegetables, housing, and utilities
(all now in the mid to high-teens), while items with large weights
in the index—such as grain cereals, beverages, and transport—still
show inflation rates above 20 percent. With the monetary sources of
inflation apparently becoming much less significant, thanks to zero
central bank credit to the government in the first quarter, it
appears supply side shocks are the more dominant factors behind the
still elevated inflation rates of recent months. Given lags in
inflation transmission, the tighter controls seen recently on NBE
financing and the current low month-on-month rates should—barring
additional shocks—begin to show up in better inflation numbers by
early to mid-2021.
§ Monetary policy: A surprise currency conversion enacted at the
start of the
Ethiopian New Year (September 2020) has proceeded relatively
smoothly, with banks registering close to 2.5 million new
depositors and benefitting from substantially increased deposits
within a short period of time. The currency conversion is
unlikely—by itself—to be of major macroeconomic significance, but
it may have helped demonetize some past stock of illicit funds (as
intended), it may bring some net income gains to the central bank
(as much as Birr 14bn, for example, if say 10 percent of the
previous Birr 140bn cash in circulation remains unreturned), and it
could help accelerate the adoption of non-cash, digital payment
habits for the period ahead (given daily cash withdrawal limits
that came out alongside the currency conversion). Bank liquidity
conditions are also much improved thanks to the influx of new
deposits (see below). As of end-September 2020, at which point the
currency conversion was still not yet finalized, moderate growth
was being registered in broad money supply—namely 19 percent from
year-ago levels or roughly in line with inflation.
§ Banking developments: Commercial bank deposits rose by Birr
105bn in the
first quarter of the fiscal year, which is six times the
increase seen in the same period last year and amounts to 8 percent
growth for the quarter and 25 growth from year-ago levels. Deposits
have now reached Birr 1.148 trillion, with 57 percent of this total
at public banks and 43 percent at private banks. Total financing
provided by the banking system (loans plus banks’ holdings of
corporate bonds, NBE Bills, and T-Bills) reached an estimated Birr
1.15 trillion at end-Sep 2020, up around 4 percent for the quarter.
Given the influx of deposits over the past quarter, this total bank
financing figure is now equivalent to 98 percent of total banking
system deposits vs a similar ratio of 103 percent in June
2020—pointing to improving liquidity conditions in recent months.
Based on monetary data for the year to September 2020, the private
sector remains the main beneficiary of bank lending growth, with
an
-
RESEARCH & ANALYTICS
Disclaimer: This report represents solely the views, analysis,
and judgement of the Cepheus research team and does not necessarily
reflect the views or opinions of the Fund’s Managing Partners,
Advisors, or Investors.
4
estimated Birr 145bn of the Birr 213bn credit increase (roughly
61 percent) going to private borrowers as opposed to Government or
SOEs. In terms of other banking indicators, the sector registered
23 percent growth in assets, 11 percent growth in paid-up capital
(to Birr 83bn), and 15 percent growth in branches (to 6,124
nation-wide branches as of September 2020 or an increase of around
159 branches over the quarter). Private banks continue to show
strong lending growth (up 8 for the quarter and 36 percent
year-on-year), while CBE has strengthened its deposit mobilization
(up 10 percent in the first quarter) but was less active on the
lending side (up 2 percent in the first quarter).
§ Fiscal policy: Budgetary performance is also off to a strong
start with record-
breaking Q1 revenue collections this year: tax receipts reached
Birr 74bn in the first three months, above government’s targets and
a 30 percent jump from year-ago levels. Government expenditure for
the quarter reached Birr 98bn, and the resulting quarterly budget
deficit—after accounting for Birr 6.4bn of grant inflows—was near
Birr 17bn. The domestic borrowing needed to cover this deficit was
fully covered by Treasury Bill issues, thanks to an auction market
that has seen Birr 51bn in gross sales this past quarter and Birr
95bn cumulative gross issues to end-September (including longer
maturities that now include a mix of 28-day, 91-day, and 182-day
T-bills).
§ Debt: Public debt rose to $54.9bn as of June 2020, up by about
$1.2bn from
year-ago levels. Relative to GDP for FY 2019-20 (Birr 3,374bn or
$106.8bn), public debt-to-GDP stands at 51.4 percent, a near 8
percentage points drop from June 2018 when the ratio peaked at 59
percent of GDP. Looking only at external debt, this now stands at
27 percent of GDP, also down from its peak of 31 percent seen in
June 2018.
§ Trade: Exports continue to show double-digit growth and rose
by 16 percent
from the same period last year. In a historic first, gold
exports exceeded coffee this past quarter, bringing in $203mn vs
$185mn for coffee. Other notable export categories showed quarterly
inflows of $102mn for flowers (down 11 percent from same period
last year), $95mn for chat (up 2 percent), and $58mn for oilseeds
(up 8 percent). Manufactured exports fared poorly this past
quarter, declining around 12 percent from year-ago levels due to
drops in textile, leather, and meat exports. With respect to
imports, their levels are down 7 percent from year-ago, with sharp
drops continuing to be seen in fuel imports ($377mn for the
quarter, and down 36 percent due to lower global oil prices), raw
materials (down 18 percent), and capital goods (down 5 percent).
Exceptions to the generally negative growth rates seen for most
import categories were seen for food items (up 25 percent), textile
sector inputs (up 16 percent), and some capital goods
components.
§ Balance of payments (BOP): Balance of payments developments
were much
less adverse than initially feared, with final figures for the
2019-20 fiscal year
-
RESEARCH & ANALYTICS
Disclaimer: This report represents solely the views, analysis,
and judgement of the Cepheus research team and does not necessarily
reflect the views or opinions of the Fund’s Managing Partners,
Advisors, or Investors.
5
showing the central bank’s fx reserves loss limited to only
around $200mn last year (from $3.4bn at end-June 2019 to $3.2bn at
end-June 2020). Per NBE data, the overall balance of payments
deficit for the year was somewhat larger at around $700mn (given
accounting conventions that also take into account changes in the
banking system’s foreign liabilities). The overall BOP deficit
reflected a current account deficit of $4bn (trade deficit of
~$11bn, a roughly balanced services account, and net transfers of
$7bn), a capital account surplus of $4bn (mainly FDI of $2.4bn and
net foreign borrowing of near $2bnbn), and a large negative errors
and omissions figure of almost $1bn. Last year’s BOP outturns were
notable for: (1) a large $1.5bn improvement in the trade deficit;
(2) an improvement in net services income (service exports fell by
6 percent due to COVID impacts on tourism but service imports fell
by an even larger amount); (3) a 17 percent drop in remittances
(from $5.7bn to 4.7bn); (4) a 20 percent drop in FDI (from $3.0bn
to $2.4bn) and; (5) a 30 percent drop in official grants (from
$2.1bn to $1.5bn). For the first quarter of this fiscal year, the
trade deficit stood at $2.6bn (versus $3bn in the same period last
year or 13 percent lower), while other available Q1 data points
show $0.5bn in FDI inflows. Fx reserves rose slightly to $3.3bn at
end-September, suggesting net positive BOP flows during the most
recent quarter—as was also the case in Q4 of 2019-20.
§ Exchange rate: The annual rate of depreciation reached a high
of 28 percent (from year-ago levels) in October 2020, but the Birr
has since begun to show a slower pace of change (24 percent for
November), in line with moderating inflation and USD weakness
versus most global currencies. Relative to the Euro and Pound, the
Birr is now 35 percent and 28 percent depreciated respectively from
year-ago levels. The average exchange rate movement averaged 66
cents per month in the four months from July-October 2020, but this
has moderated to 50 cents per month in November 2020 (which had
been our average monthly expectation for the quarter). As before,
the annual depreciation rates of nominal depreciation are at least
matching recent year-on-year inflation rates, suggesting again that
the central bank’s exchange rate policy seeks to at least maintain
a constant real effective exchange rate (REER) that can prevent a
deterioration in external competitiveness.
§ Sovereign bond and Market Ratings: Reflecting the reactions of
foreign
bond-holders, the prices and yields of Ethiopia’s sovereign bond
moved significantly following the onset of the conflict in
November. The bond’s yield had previously declined from close to 7
percent at end-June 2020 to 6 percent as of early November, but the
start of the conflict on November 3 has since brought about a sharp
spike in yields. As of end-November, the latest yield stands at
close to 8 percent, which is indicative of the USD interest rate
now needed to attract foreign bondholders. No ratings action has
been taken in the last quarter by the three global rating agencies:
Ethiopia’s rating by Moody’s remains at ‘B2’ with a negative
outlook, while Standard and Poor’s and Fitch Ratings also retain
their long-standing ‘B’ ratings.
-
RESEARCH & ANALYTICS
Disclaimer: This report represents solely the views, analysis,
and judgement of the Cepheus research team and does not necessarily
reflect the views or opinions of the Fund’s Managing Partners,
Advisors, or Investors.
6
Macroeconomic Outlook: Economic activity indicators in the first
few months of the fiscal year showed mostly positive growth
prospects, with signs of a V-shaped recovery emerging even in
COVID-hit areas such as tourism, government revenue, and industrial
park exports. While there remain uncertainties regarding the
conflict’s ultimate resolution, its apparent short duration (based
on recent developments) and limited geographic scope imply minimal
macro impacts. Accordingly, even though we now forecast slightly
lower growth and somewhat higher inflation for this year, we expect
the outlook to remain favorable with respect to the budgetary
stance, banking activity, and balance of payment flows. § GDP
growth: We expect GDP growth will be somewhat lower this year
than
our previous forecast of 5.5 percent. This revision is driven
solely by our updated expectations for this year’s crop output, and
we see no strong basis—yet—for reducing our previous projections
for growth in industry (mainly construction) and in service
sectors.
o For agriculture (38% of GDP), the outlook had generally been
quite
positive till the end of the rainy season (September 2020),
reflecting a combination of favorable rainfall, improved fertilizer
usage, and some expected increase in acreage farmed (following a
‘leave no land uncultivated’ campaign launched in most regions). On
this basis, we had expected that total crop output was likely to
rise from last year’s 335mn quintals to a level at or above 350mn
for this year, for around 4 percent growth. However, more recent
developments suggest that the locust invasion has affected much
larger areas of farmland (previously estimated around 200,000
hectares but now potentially as much as 700,000 hectares) and
lasted for longer periods in some areas. Moreover, harvest activity
which normally takes place in November and December is likely to be
at least partly disrupted from the recent conflict in parts of
northern Ethiopia, having some ultimate impact on crop yields.
Reflecting these considerations, plus feedback from experts in the
agricultural sector, we think overall crop output is likely to
remain broadly at the levels recorded last year—thus registering
near zero growth—which would have the effect of pulling down
overall growth.
o In the construction sector (18% GDP), we retain our
expectations that the significantly increased government budget
will be bringing many new projects and hence continued strong
activity in this sub-sector. Budget execution trends so far are in
line with these expectations given trends in quarterly government
spending. Off-budgetary public sector projects (especially in
housing) will also provide further stimulus, while rising cement
production and still-strong growth bank lending for the
housing/construction sector (up 125 percent year-on-year and now 11
percent of total loans) suggests continued on-going expansion in
the
-
RESEARCH & ANALYTICS
Disclaimer: This report represents solely the views, analysis,
and judgement of the Cepheus research team and does not necessarily
reflect the views or opinions of the Fund’s Managing Partners,
Advisors, or Investors.
7
private segment as well. Growth in the high single-digits thus
remains a strong prospect for FY 2020-21.
o For wholesale and retail trade (14% of GDP), activity
indicators in the
first quarter (ECX trading, bank lending, exports) are
supportive of low to mid-single digit growth in this sector. While
crop related trading may be somewhat affected, other trading
activities linked to consumer goods, construction activities,
exports, and retail can still support moderate growth in this
sub-segment.
o Other sub-sectors that should continue to show gradually
strengthening
activity levels, including health (given stepped-up
allocations/activities this year), education (given the re-starting
of educational institutions throughout most parts of the country),
and public administration (with implementation of this year’s
expanded budget). Financial services activity shows continued
strong growth in the first quarter (loans up 31 percent) while
mining activity (though still a tiny share of GDP) should also show
very high rates of growth judging from gold exports and a number of
new projects poised to start operations.
o The most notable risk to the macro outlook of course concerns
the
direction ultimately taken in the resolution of the recent
conflict, and the potential for on-going disruptions that may
affect the broader economy. Also, shortfalls in government funding
(due to weakened revenue generation capabilities, lower external
loans, constrained domestic funding or delayed privatization) may
reduce government spending and thus hold back the public sector
related drivers of GDP growth.
o Overall GDP growth: Considering all of the above, we reduce
our
expectation for GDP growth to 4.1 percent for FY 2020/21; this
reflects anticipated growth rates of 0%/9%/4% for
agriculture/industry/services and their respective weights of
33%/29%/38% in real GDP. Recent growth forecasts by external
observers (mostly before the conflict) range from a low of zero by
the IMF, which we think exaggerates the likely severity of
COVID-related shocks, to 2 percent by Moody’s, 3.3 percent by the
World Bank, 4.5 percent by Standard & Poor’s, and 8.5 percent
by the Government. A ‘consensus’ average (excluding our
projections) would suggest growth of 3.1 percent for 2020-21.
§ Inflation: While sharp drops in recent month-on-month
inflation bode well
for the direction of future inflation, the still high inflation
levels over the past five months of the fiscal year imply a longer
disinflation path than we had previously expected. Though we had
expected inflation to fall by 16 percent by December and 9 percent
by June 2021, the latest inflation readings and the stance of macro
policies now suggest these figures will be several percentage
points higher for the remainder of the fiscal year. We now
-
RESEARCH & ANALYTICS
Disclaimer: This report represents solely the views, analysis,
and judgement of the Cepheus research team and does not necessarily
reflect the views or opinions of the Fund’s Managing Partners,
Advisors, or Investors.
8
forecast year-on-year inflation of 18 percent at end-December
and 13 percent at end-June 2021, with the prospect of single-digit
likely to emerge only in the second half of 2021.
§ Fiscal policy and debt: Fiscal policy looks to be on track and
in line with the budget, given impressive revenue outturns recorded
in the first quarter (Birr 74bn, 105 percent of target). In a very
positive development, the now one-year old, market-based Treasury
Bill market has provided the domestic financing needed to cover the
first quarter deficit—without resort to central bank credits to the
government. With first quarter revenue in line with targets (and
this continuing to be the case for October 2020), there appear
limited risks of major fiscal slippages for the period ahead. A
further deficit deterioration linked to the conflict seem unlikely,
in our view, as significant allocations were already in the budget
this year for defence and security outlays. Humanitarian spending
needs that will arise from the recent conflict are also likely to
be contained through existing budgetary outlays (including
re-allocations) as well as extra external assistance. Reflecting
all of the above, we anticipate the deficit will remain broadly in
line with the budget (near 3 percent of GDP) and that total public
debt will reach around 55 percent of GDP by June 2021. Overall, it
is notable that despite multiple shocks faced this year (including
the recent conflict, the COVID pandemic, successive locust
invasions), the debt-to-GDP is trending upwards only slightly and
not showing any rapid or alarming increases.
§ Monetary developments and banking: After substantial loosening
in response to the COVID pandemic, the rest of the fiscal year is
likely to show moderating growth rates in both reserve money and
broad money. A slowdown in broad money growth together with a large
domestic borrowing requirement for budget would normally leave
limited financing for the private sector; this had been our
expectations at the start of the fiscal year and explained our
previously low 15 percent credit growth projection for this year.
However, the recent currency conversion has provided unexpected and
ample liquidity to the banking sector as a whole, and so concerns
about a squeeze on credit to the private sector our now less
pressing. Moreover, while some sub-sectors of the economy may show
reduced demand for loans, trends in the first quarter suggest that
annual credit growth of close to 20 percent is still possible for
the fiscal year. Potential challenges in the sector include a
likely uptick in NPLs, as some COVID-affected credits become
recognized as non-performing, but the low initial NPL ratios at
most private banks should allow them to withstand modest increases
given on-going growth in their overall loan books and rising
revenues. Looking at broader trends, the financial sector is
beginning to see the establishment of new local banks but the entry
of other non-bank service providers—despite regulatory
loosening—remains in its very early stages with still limited
activity to date.
-
RESEARCH & ANALYTICS
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and judgement of the Cepheus research team and does not necessarily
reflect the views or opinions of the Fund’s Managing Partners,
Advisors, or Investors.
9
§ Balance of payments: We largely retain the BOP projections
from our last quarterly report, including our expectations of an
improving balance of payments position aided by significant
currency depreciation and a still favourable outlook in global
commodity markets (most notably, low oil prices, high coffee
prices, and high gold prices). As before, we see goods exports
reaching $3.4bn (14 percent growth from last year) and services
exports at $14.9bn (a 7 percent increase), while we make slight
adjustments for remittances (expected at $5.1bn, a 6 percent
increase), and official grants of ($1.5bn, in line with last year).
On the capital account, we adjust our FDI projections to $3.5bn
(accounting for Q1 trends and with expectations that privatization
transactions take pace by June 2021), and project net government
borrowing of near $1.7bn in line with budget plans. As part of the
COVID-related Debt Service Suspension Initiative (DSSI) from the
international community, debt service relief from official
multilateral and bilateral creditors is expected to reduce
Ethiopia’s external loan repayment burdens in 2020-21, covering as
much as $300mn-$500mn in government dues over a 12-month period, by
our estimates. Reflecting these anticipated developments, we
project that fx reserves will exceed $4bn by June 2021, compared to
the $3.2bn stock of fx reserves at end-June 2020. These increased
net balance of payments inflows should allow for somewhat improved
fx supplies to the private sector over the course of the year.
However, with the Birr still some distance from its market rate,
and given the gradual approach taken to broader exchange rate
system reform, delays in accessing foreign exchange will of course
still remain the norm—at least for this year—for most businesses in
most sectors.
§ Exchange rate: After monthly depreciations of 33/90/59/80
cents in July/August/September/October, the Birr has moved by just
50 cents this past month (November). For the five months since the
start of the fiscal year, the Birr’s depreciation has now averaged
62 cents per month. With moderating inflation and significant USD
depreciation versus other global currencies in recent months (both
of which lessen the need for Birr depreciation), we are inclined to
expect 50 to 60 cents of monthly Birr adjustments—on average—for
the period ahead. This translates into year-on-year depreciation
rates of around 20 percent and would be sufficient to fully cover
anticipated rates of inflation. Accordingly, we see the exchange
rate at close to 39 Birr/USD by end-December 2020 and just under 42
Birr/USD by June 2021.
A summary of our full set of macroeconomic projections—covering
the real, banking, fiscal, and external sectors—is provided in the
attached Annex.
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RESEARCH & ANALYTICS
Disclaimer: This report represents solely the views, analysis,
and judgement of the Cepheus research team and does not necessarily
reflect the views or opinions of the Fund’s Managing Partners,
Advisors, or Investors.
10
ECONOMIC ACTIVITY: Recent Developments § The 2019-20 fiscal year
was able
to register still-strong growth of 6.1 percent (versus an annual
average of 8.5 percent in the prior four years) mainly because
two-thirds of the year (July-February) was not affected by
COVID-related shocks, while those sectors most impacted by the
pandemic towards the end of the fiscal year were generally small
segments of the economy.
§ The reduced growth reflects notably lower growth rates in
transport, construction, and hotels & restaurants.
§ The 6.1 percent growth rate
marks the lowest seen in 17 years, or since 2003.
§ Based on the 19 sub-sectors by
which Ethiopia’s GDP data is reported, mining showed a near
doubling of output (91% growth), though it makes up only a tiny
share of overall GDP.
§ Taking a five-year perspective, the fastest growing
sub-sectors in recent years have been construction, manufacturing,
finance, transport, and health and social services.
Figure 1B:Sub-Sector GDP Growth Rates: A Five-Year Overview
Ranked by growth in 2019-2020
SUB-SECTORS 2015-16 2016-17 2017-18 2018-19 2019-20 5-Yr Avg1
Mining and Quarrying -3.3% -29.8% -20.8% -21.9% 91.4% 3.1%2 Health
and Social Work 10.8% 7.0% 8.3% 14.3% 12.9% 10.7%3 Financial
Intermediation 9.6% 18.3% 10.7% 13.6% 10.2% 12.5%4 Construction
25.0% 20.7% 15.7% 15.0% 9.9% 17.3%5 Large and Medium Scale
Manufacturing 22.9% 19.2% 8.4% 10.0% 9.8% 14.1%6 Real Estate,
Renting and Business Activities 3.7% 4.4% 6.2% 7.5% 9.5% 6.3%7
Electricity and Water 15.0% 12.4% 9.6% 4.0% 7.2% 9.6%8 Whole Sale
and Retail Trade 8.2% 6.5% 11.4% 11.7% 6.4% 8.8%9 Crop 3.4% 8.2%
4.7% 3.0% 4.7% 4.8%
10 Forestry 2.2% 3.6% 3.3% 3.8% 3.9% 3.4%11 Animal Farming and
Hunting -1.5% 4.2% 0.6% 6.0% 3.3% 2.5%12 Small Scale and Cottage
Industries 2.5% 36.9% 3.7% 3.0% 2.6% 9.7%13 Other Community, Social
& Personal Services 3.0% 4.5% 5.1% 6.3% 2.5% 4.3%14 Public
Administration and Defense 7.4% 13.2% 8.9% 9.0% 2.3% 8.2%15 Private
Households with Employed Persons 4.3% 3.5% 3.9% 2.5% 2.3% 3.3%16
Hotels and Restaurants 15.6% 0.1% 6.1% 9.0% 2.2% 6.6%17 Fishing
0.1% 0.5% 11.3% 2.3% 2.0% 3.2%18 Education 8.8% -3.2% 3.6% 3.5%
1.8% 2.9%19 Transport and Communications 13.7% 15.1% 6.4% 21.0%
1.1% 11.5%
Source: National Planning Commission
Figure 1A: Growth Over the Past Five Years--Main Economic
Sectors and Sub-sectors
2015-16 2016-17 2017-18 2018-19 2019-20 5-Yr Avg
GDP growth: 8.0% 10.1% 7.7% 8.0% 6.1% 8.0%
Agriculture 2.3% 6.7% 3.5% 3.8% 4.3% 4.1%Crops 3.4% 8.2% 4.7%
3.0% 4.7% 4.8%
Industry 20.6% 20.3% 12.2% 12.0% 9.0% 14.8%Manufacturing 18.4%
24.7% 5.5% 7.7% 7.5% 12.8%Mining -3.3% -29.8% -20.8% -21.9% 91.4%
3.1%Construction 25.0% 20.7% 15.7% 15.0% 9.9% 17.3%
Services 8.7% 7.5% 8.8% 8.3% 5.3% 7.7%Hotels and Restaurants
15.6% 0.1% 6.5% 9.0% 2.2% 6.7%Transport & Communications 13.7%
15.1% 6.4% 21.0% 1.1% 11.5%Banking Sector 9.6% 18.3% 10.7% 13.6%
10.2% 12.5%Public Admin and Defense 7.4% 13.2% 8.9% 9.0% 2.3%
8.2%Health and Social Work 10.8% 7.0% 8.3% 14.3% 12.9% 10.6%
Source: National Planning Commission and NBE
-
RESEARCH & ANALYTICS
Disclaimer: This report represents solely the views, analysis,
and judgement of the Cepheus research team and does not necessarily
reflect the views or opinions of the Fund’s Managing Partners,
Advisors, or Investors.
11
Recent Developments … GDP and Investment § The crop sector
comprises the single
largest component of GDP at 21 percent.
§ Together with three other line-items in the GDP data—animal
husbandry, forestry, and fishing—the combined ‘agriculture’ sector
shows a 32 percent share in overall GDP, per the categorizations of
the National Planning Commission.
§ The investment-to-GDP ratio fell
significantly to just 31 percent last year, well below the norms
of 35-38 percent seen in prior years. This reflects declines in
both domestic and foreign savings.
Table 2A: Investment and Savings--In Percent of GDP
Source:NPC
37.3%
38.4%
34.2%
35.3%
30.8%
32.0%
30.2%
32.3%
29.9%
26.8%
22.4% 22.4%
24.1%
22.1%
20.9%20.0%
22.0%
24.0%
26.0%
28.0%
30.0%
32.0%
34.0%
36.0%
38.0%
40.0%
2015/ 16 2016/ 17 2017/ 18 2018/ 19 2019/ 20
Investment, National Savings, and Domestic Savings (% of
GDP)
Rate of Investment Rate of Gross National Savings Rate of Gross
Domestic Saving
Figure 1C: GDP Composition in FY 2019-20
SUB-SECTORSPercent
ShareCumulative
Share
1 Crops 21.0% 21.0%2 Construction 20.8% 41.8%3 Whole Sale and
Retail Trade 14.2% 56.0%4 Animal Farming and Husbandry 8.4% 64.4%5
Transport and Communications 5.2% 69.6%6 Large Manufacturing 4.8%
74.4%7 Real Estate & Renting Activities 4.3% 78.7%8 Public
Administration and Defense 4.3% 83.0%9 Financial Intermediation
3.2% 86.2%
10 Forestry 2.8% 89.0%11 Hotels and Restaurants 2.4% 91.5%12
Education 2.2% 93.7%13 Small Scale and Cottage Industries 2.1%
95.8%14 Health and Social Work 1.2% 96.9%15 Other Community &
Social Services 1.1% 98.0%16 Private Households w/Employed Persons
0.9% 98.9%17 Electricity and Water 0.8% 99.7%18 Mining and
Quarrying 0.3% 99.9%19 Fishing 0.1% 100.0%
Source:National Planning Commission
-
RESEARCH & ANALYTICS
Disclaimer: This report represents solely the views, analysis,
and judgement of the Cepheus research team and does not necessarily
reflect the views or opinions of the Fund’s Managing Partners,
Advisors, or Investors.
12
Recent Developments… GDP and Investment:
§ We estimate that the decline in total
investment was concentrated mainly in private investment
(judging from FDI and capital goods imports), though private
investment is still considerably higher in absolute terms compared
to public investment.
§ The fall in the investment ratio
parallels sizeable drops also seen—relative to GDP—in capital
goods imports, government capital spending, and foreign
investment.
§ Based on ICOR ratios seen over the past five years, about 4.4
percent of GDP in new investment is needed to generate an extra 1
percent of growth in the economy.
Figure 2B: Investment to GDP Ratios
2015-16 2016-17 2017-18 2018-19 2019-20Investment to GDP 37.3%
38.4% 34.2% 35.3% 30.8%
By Investor type:Public sector Investment-to-GDP 16.8% 14.4%
12.8% 11.0% 10.0%Private sector Investment-to-GDP 20.5% 24.0% 21.9%
24.2% 20.8%
By financing source:Domestic Savings to GDP ratio 22.4% 22.4%
24.1% 24.0% 20.9%External Savings to GDP ratio 14.9% 16.0% 10.6%
11.2% 9.9%
Source: NBE, NPC; Estimates for private/public composition of
2019-20.
Figure 2C: Investment to GDP versus Other Investment
Indicators/Ratios
2015-16 2016-17 2017-18 2018-19 2019-20
Investment to GDP 37.3% 38.4% 34.2% 35.3% 30.8%
Capital goods imports-to-GDP 9.2% 7.4% 6.3% 5.2% 3.8%Govt
capital expenditure-to-GDP 9.0% 8.3% 6.5% 6.5% 3.3%SOE borrowing to
GDP 12.0% 13.0% 13.2% 12.6% 12.0%Foreign investment to GDP 4.4%
5.1% 4.4% 3.1% 2.3%Total bank financing to GDP 30.0% 31.8% 32.6%
32.8% 31.7%
Source: NBE
Figure 2D: Investment to GDP, Growth, and ICOR ratios
2015-16 2016-17 2017-18 2018-19 2019-20 5-Yr AvgInvestment to
GDP 37.3 38.4 34.2 35.3 30.8 35.2GDP Growth rate 8.0 10.2 7.7 9.0
6.1 8.2ICOR ratio (efficiency indicator) 4.7 3.8 4.4 3.9 5.0
4.4
Non-Agricultural GDP Growth rate 11.1 12.41 10.19 11.78 7.08
10.5ICOR ratio for Non-Agric GDP 3.36 3.09 3.36 3.00 4.35 3.4
Credit growth rate 22% 25% 23% 28% 29% 26%
Source: NBE, NPC
-
RESEARCH & ANALYTICS
Disclaimer: This report represents solely the views, analysis,
and judgement of the Cepheus research team and does not necessarily
reflect the views or opinions of the Fund’s Managing Partners,
Advisors, or Investors.
13
Activity Indicators
§ Activity indicators besides GDP reveal expansion in multiple
areas during 2019-20, most notably in bank lending, exports, power
generation, and ECX traded commodity volumes.
§ Areas of weakness were
concentrated in tourism and FDI—both of which are so far
relatively small shares of the economy.
§ The performance of Ethiopia’s largest companies—especially the
23 largest state enterprises—also suggests an expanding economy,
given their 17 percent increase in sales and 6 percent rise in
profits.
Figure 3A: Economic Activity Indicators: Last Fiscal Year vs
Year Before
FY 2018-19 Full Year
FY 2019-20Full Year
Nominal growth
Real growth
Tax collections (Birr bns) 198.1 233.7 18.0% -2.7%
o/w Direct tax collections 120.2 128.60 7.0% -13.6% o/w Trade
tax collections 77.9 104.92 34.7% 14.1%Bank deposits (Birr bns) 899
1,043 16.0% -4.6%
Bank lending (Birr bns) 456 590 29.3% 8.7%
Bank profits (private banks), Birr bns 13.998 16.988 21.4%
0.7%
Exports of goods ($mns) 2,667 2,988 … 12.0%
Imports of goods ($mns, excl aircraft) 14,242 13,815 … -3.0%
Industrial park exports ($mns) 141 165 … 17.0%
Industrial park employment 71,788 71,442 … -0.5%
Tourist arrivals 769,781 549,315 … -28.6%
Foreign Direct Investment ($bns) 3.1 2.5 … -19%
Fuel consumption (MT) 3,889,608 3,867,197 … -0.6%
Electricity power generation (Kwh mns) 13,840 15,192 … 9.8%
Ethio Telecom revenue (Birr bns) 36.3 47.7 31.4% 10.8%
Ethio Telecom subscribers (mns) 43.7 46.2 … 5.8%
ECX Traded Commodities (Birr bns) 33.9 40.0 18.0% -2.6%
ECX Traded Commodities (Tons) 680,280 761,914 … 12.0%
Govt Capital Expenditure (Birr bns) 85.7 112.0 30.8% 10.2%
SOE bond borrowing (Birr bns) 338.6 405.2 19.7% -0.9%
Source: NBE, Ministry of Transport, Ministry of Revenue, Banks
survey data, ECX, JCC, EIC, Ethio Telecom, ELSE, MOTI
Figure 3B: Selected Indicators for Ethiopia's 23 Largest
SOEs
Income Indicators in Birr billions
Company Rev Profit Margin Rev Profit Margin Rev Profit 1
Ethiopian Airlines Group 114.0 8.9 7.8% 122.1 … 7.1% …2 Commercial
Bank of Ethiopia 53.6 17.9 33.4% 68.7 14.0 20.4% 28.2% -21.8%3
Ethio Telecom 36.0 24.9 69.2% 47.7 28.2 59.0% 32.5% 13.1%4 Eth
Shipping & Logistics Enterprise 18.7 2.0 10.6% 25.7 2.6 10.0%
37.4% 29.3%5 All Other SOEs (19 Companies) 35.7 (1.4) … 36.3 10.8 …
1.6% …
Of which: 14 profitable … 2.5 … … … … … Of which: 5 loss-making
… (3.9) … … … … …
TOTAL FOR 23 LARGE SOEs: 258.0 52.3 20.3% 300.5 55.6 18.5% 16.5%
6.2%
Source: Public Enterprises Holding and Supervision Agencey
(PEHAA) data and press reports.
FY 2019-20FY 2018-19 Growth
-
RESEARCH & ANALYTICS
Disclaimer: This report represents solely the views, analysis,
and judgement of the Cepheus research team and does not necessarily
reflect the views or opinions of the Fund’s Managing Partners,
Advisors, or Investors.
14
Activity Indicators… continued:
§ Looking at developments since the start of the new fiscal
year, one observes positive trends for the July-September period
with respect to tax collections, bank deposits, bank lending, and
exports.
§ Tourism arrivals show large declines from year-ago levels,
though the picture is more positive when seen sequentially (i.e.,
the monthly developments since April 2020).
§ Several COVID-hit segments of the
economy are showing somewhat V-shaped recoveries, including for
tourist arrivals, industrial park exports, deposit growth, and
government revenues.
4B: Monthly Tourist Arrival Numbers (March-September 2020) 4C:
Industrial Parks Export($mn)
Source: Tourism Commission Source: EIC
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20
Monthly Tourist Arrival Numbers
-
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
Dec-1
9Jan
-20Feb
-20Ma
r-20
Apr-2
0Ma
y-20
Jun-20
Jul-20
Aug-2
0Sep
-20
Monthly Industrial Parks Export
4D: Quarterly Deposit Growth Rate(%) 4E: Quarterly Revenue
Source: Banks survey data Source: ERCA
15%
17%
19%
21%
23%
25%
27%
Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20
Sep-20
Quarterly Deposit Growth Rate
40
45
50
55
60
65
70
75
80
2019/20(Q2) 2019/20(Q3) 2019/20(Q4) 2020/21(Q1)
Quarterly Revenue
Figure 4A: Quarterly Activity Indicators
FY 2019-20 First Quarter
FY 2020-21First Quarter
Nominal growth
Real growth
Tax collections (Birr bns) 57.2 74.4 30.1% 9.4%
o/w Direct tax collections 30.7 61.00 98.7% 78.1% o/w Trade tax
collections 26.5 13.40 -49.4% -70.1%Bank deposits (Birr bns) 917.6
1,148 25.1% 4.5%
Bank lending (Birr bns) 475.1 623 31.2% 10.6%
Bank profits (private banks), Birr bns 5.0 8.8 76.6% 56.0%
Exports of goods ($mns) 723 830 … 14.8%
Imports of goods ($mns, excl aircraft) 3,731 3,466 … -7.1%
Industrial park exports ($mns) 47 40 … -16.1%
Industrial park employment 76,289 68,460 … -10.3%
Tourist arrivals 223,053 46,540 … -79.1%
Foreign Direct Investment ($bns) 0.7 0.5 … -29%
Capital Goods Imports (USD bns) 1,020 966 -5.3%
Aircraft imports 16 15 -7.3%
Transport-related capital goods 138 107 -22.9%
Capital Goods excl aircraft 1,005 951 -5.3%
Capital Goods excl aircraft/transport 866 845 -2.5%
Source: NBE, Ministry of Revenue, Banks survey data, EIC,
MOTI
-
RESEARCH & ANALYTICS
Disclaimer: This report represents solely the views, analysis,
and judgement of the Cepheus research team and does not necessarily
reflect the views or opinions of the Fund’s Managing Partners,
Advisors, or Investors.
15
Rainfall and Agriculture
§ Above-average rains were experienced in most parts of the
country, which has been positive for this year’s crop
prospects.
§ Higher use of fertilizers (whose imports were up 20 percent in
FY 2019-20) and a campaign to ‘leave no lands uncultivated’ also
suggested good agricultural prospects, and this should still be the
case in most parts of the country.
§ However, despite these promising initial
conditions, several rounds of locust invasions have affected
farmlands towards the end of rainy season (see below), while
conflict-related disruptions to harvest activity—in November and
December—appear to be emerging in some areas.
§ Locust infestations have covered a larger
than previously expected farm area, with recent estimates
suggesting as much as 700,000 hectares (around 5.5 percent of total
farmland) has been impacted. If a high share of the crops on these
impacted farms are lost, agriculture growth could be significantly
held back, even if the rest of the country’s (non-affected) farms
show some modest growth.
§ On the basis of what we now think is likely to be near-zero
agriculture growth, we estimate overall GDP growth at 4.1 percent
for the current fiscal year, largely driven by construction
activity and moderate growth in services.
Figure 5A: Rainfall Levels in 12 Geographic Areas--Data in
mm
FY 2018/19 FY 2019/20 Y-o-Y changeAddis Ababa Bole 335.5 306.7
-9%Arba Minch 49.6 98.0 98%Awassa 184.7 118.3 -36%Bahir Dar 351.2
484.4 38%Combolcha 194.6 270.1 39%Deber Zeit (AF) 246.6 ….Debre
Markos 323.1 319.2 -1%Dire Dawa 103.1 138.8 35%Gode - 0.1 …..Gonder
206.2 268.3 30%Gore 285.9 247.2 -14%Jimma 267.2 290.3 9%Mekele
135.3 175.8 30%Methehara 103.9 171.0 64%Negele 24.2 36.4 51%Nekemte
351.3 391.9 12%Robe Bale 119.9 129.3 8%
AVERAGE, all areas 189.7 217.2 14%
Source: National Meteorology Agency
Figure 5B: Estimated Impact of Locust Infestation
Locust-related impacts Low End High End
Locust-affected lands, estimated hectares 200,000 700,000 Total
farmland under cultivation, 2019-20 12,773,912 12,773,912
Locust-affected farms, percent of all cultivated land 1.57%
5.48%
Locust-affected areas expected output, mns of qtls* 5.2 18.4
Total crop output 2019-20, mn quintals 335.0 335.0
Potential crop decline fall if 100% loss in affected farms -1.6%
-5.5%Potential crop decline fall if 50% loss in affected farms
-0.8% -2.7%
Source: CSA data for 2019-20 and Cepheus estimates. *Using last
year's average yield of 26.2 quintals/hectare.
Figure 5C: Estimates of FY 2019-20 Growth and FY 2020-21
Outlook
FY 2020-21Previous Proj Actual Projection
GDP growth 6.0% 6.1% 4.1%Agriculture 4.3% 4.3% 0.0%Industry
11.0% 9.0% 9.0%Services 4.0% 5.3% 4.0%
Source: NPC and Cepheus Research projections
Last Fiscal Year: 2019-20
-
RESEARCH & ANALYTICS
Disclaimer: This report represents solely the views, analysis,
and judgement of the Cepheus research team and does not necessarily
reflect the views or opinions of the Fund’s Managing Partners,
Advisors, or Investors.
16
§ A ‘consensus’ average of growth forecasts
(though mostly pre-conflict) suggests a 3.1 percent outturn for
this year, somewhat below our projection of 4 percent.
PRICES AND INFLATION: Recent Developments and Outlook
Inflation outturns: § Overall inflation of 19.3 percent as
of end-October reflects a mix of near 23 percent inflation for
domestically produced goods, alongside lower inflation rates of 15
percent for imported items and for services.
§ As before, the main products contributing to inflation include
grain cereals (24.3%), vegetables (19.3%), and housing and utility
costs (14.6%). These three items each have weights of between 12 to
17 percent in the consumer price index, and thus heavily affect
trends in overall inflation.
Figure 6A: Inflation Outturns by key analytical categories --
October 2020
Weight in CPI index
Weights within
Category
Inflation (M-o-M)
Inflation (Y-o-Y)
A. Domestically Produced and Domestically Consumed 23.7%1 Bread
and Cereals 17.1% 47% 0.8% 24.3%2 Alcoholic beverages and tobacco
4.9% 13% 2.2% 24.0%3 Other food products 5.6% 15% 0.6% 41.4%4 Meat
4.2% 12% 0.7% 13.4%5 Milk, Cheese, Eggs 3.1% 9% 1.3% 13.4%6 Sugar,
jam, honey and others 1.4% 4% 5.2% -1.7%
Sub-Total 36.5% 100%
B. Domestically produced but also heavily exported 23.3%7
Vegetables 12.3% 70% -0.3% 19.3%8 Non- alcoholic beverage and
coffee 5.1% 29% 2.6% 34.2%9 Fruits 0.2% 1% 3.1% 0.2%
Sub-Total 17.6% 100.0%
C. Import-Heavy Commodities 13.3%10 Clothing and footwear 5.7%
33% 3.9% 12.3%11 Furnishings, Household Equipment, and others 4.7%
27% 0.1% 5.7%12 Oils and Fats 4.3% 25% 4.3% 22.4%13 Miscellaneous
goods 2.5% 15% 0.0% 14.5%
Sub-Total 17.2% 100.0%
D. Services 15.1%14 Housing, water, electricity, gas, other
fuels 16.8% 59% -1.8% 14.6%15 Restaurants and Hotels 5.3% 18% 2.9%
15.9%16 Transport 2% 9% -12.4% 22.2%17 Health 1% 5% -0.2% 20.3%18
Communication 2% 7% -0.6% 6.4%19 Recreation and culture 0% 1% 4.6%
5.9%20 Education 0% 1% 4.5% 11.0%
Sub-Total 28.7% 100.0%
Overall inflation 100% … 0.4% 19.3%
Source: CSA and Cepheus Research for categorizations; shaded
figures are those items with highest weight in CPI index
Figure 5D: Growth Projections by Different Institutions
FY 2020-21Government 8.5%International Monetary Fund 0.0%World
Bank 3.3%African Development Bank 3.1%Economist Intelligence Unit
1.9%NKC Oxford Economics 1.8%Standard & Poors 4.0%Moody's
2.0%Fitch 3.0%
Average 3.1%
Cepheus Capital 4.0%
Source: Press Reports, IMF, WB, Cepheus Research
-
RESEARCH & ANALYTICS
Disclaimer: This report represents solely the views, analysis,
and judgement of the Cepheus research team and does not necessarily
reflect the views or opinions of the Fund’s Managing Partners,
Advisors, or Investors.
17
Prices and Inflation… continued:
§ Inflation excluding the three large components noted above
remains close to 10 percent as of end-October.
§ Cereal grains, which represent the single highest component in
Ethiopia’s inflation index, continue to show large increases for
teff (now Birr 4,470 per quintal vs Birr 3,030 a year ago) but
moderating price levels for other grains such as maize, wheat, and
sorghum.
§ The regional variation in inflation continues to be quite
considerable, with inflation rates ranging from a low of 5 percent
in the Somali Region to a high of 30 percent in Tigray. The
conventionally reported figure, i.e., 19 percent for October 2020,
is based on the national average.
Table 6B: Inflation Excluding Certain Large Components
Overall Inflation, End-October 2020 19.3%
Inflation excluding selected items Inflation without cereals
price increases 15.2% Inflation without cereals & vegetable
price increases 12.8% Inflation without cereals & vegetable
& housing/utilities 10.4%
Memo items: Weight Inflation Cereals (including bread) 17.1%
24.3% Vegetables 12.3% 19.3% Housing and Utilities 16.8% 14.6%
Source: CSA and Cepheus Research
FIgure 6C : Price of major grains/cereals (Birr per quintal)
Source: Ethiopian Grain Trading Enterprise
1,146 944
744 905 999 978 990 997 1,010
1,140 1,218 1,234 1,218
3,030 2,990 2,988 2,908 3,022
3,466
3,782 3,886 3,793 4,000
4,113
4,447 4,470
1,884 1,795 1,851 1,726 1,740 1,660 1,695 1,883 1,789 1,885
1,968 2,038 1,930 1,932 1,943 1,803 1,705 1,702 1,698 1,695
1,953
2,498 2,458 2,170
2,395 2,268
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20
Jul-20 Aug-20 Sep-20 Oct-20
Price of major grains/cereals (Birr per quintal)
Maize Teff Wheat Sorghum
FIgure 6D: National and Regional Inflation, October 2020
Source: CSA
5%
14%16%
18% 18%19% 20%
21%
24%
27%28%
30%
0%
5%
10%
15%
20%
25%
30%
35%
Soma
liAf
ar
Dire
Dawa
Amha
ra
Orom
ia
Coun
try
Addis
Aba
baHa
rari
Gamb
ella
SNNP
Bene
shan
gual-
Gum
uzTig
ray
National and Regional Inflation for October 2020
-
RESEARCH & ANALYTICS
Disclaimer: This report represents solely the views, analysis,
and judgement of the Cepheus research team and does not necessarily
reflect the views or opinions of the Fund’s Managing Partners,
Advisors, or Investors.
18
Prices and Inflation… continued:
§ The positive news on inflation is that month-on-month price
increases have fallen sharply to 0.4 percent in October 2020, which
is equivalent to just a 5 percent annualized rate if it were
sustained at this rate.
§ Looking ahead, we no longer expect to see negative
month-on-month inflation rates for the upcoming harvest months, and
thus assume—for both November and December—rates of monthly
inflation in line with the recent outturn. Thereafter, we utilize
average month-on-month inflation rates based on historical
averages.
§ On this basis, inflation rates would remain in the range of 18
to 19 percent till early 2021, but begin falling to the mid-teens
by end-March and towards 13 percent by mid-2021.
Figure 6F: Inflation Projections to June 2021
Price index M-o-M inflation Y-o-Y inflation
ActualsJuly 2019 146.3 1.3% 15.5%August 2019 149.8 2.4%
17.9%September 2019 152.3 1.7% 18.6%October 2019 152.1 -0.1%
18.7%November 2019 153.1 0.7% 20.8%December 2019 154.0 0.6%
19.8%January 2020 155.1 0.7% 18.7%February 2020 159.5 2.8%
21.7%March 2020 164.2 3.0% 22.6%April 2020 167.6 2.1% 22.9%May
20220 170.5 1.7% 19.8%June 2020 175.4 2.9% 21.5%July 2020 179.0
2.0% 22.3%August 2020 179.8 0.5% 20.0%September 2020 180.8 0.6%
18.7%October 2020 181.5 0.4% 19.3%
ProjectionsNovember 2020 182.2 0.4% 19.0%December 2020 182.9
0.4% 18.8%January 2021 184.6 0.9% 19.0%February 2021 185.8 0.6%
16.5%March 2021 189.2 1.8% 15.2%April 2021 192.0 1.5% 14.6%May 2021
194.7 1.4% 14.2%June 2021 197.4 1.4% 12.5%
historical mediansSource: CSA and Cepheus Research; M-o-M
inflation projections guided by recent trends and
Figure 6E: Month-on-Month Inflation: Trend Lines in Recent
Months
Source: CSA
3.0%
2.1%
1.7%
2.9%
2.0%
0.5%0.6%
0.4%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
March April May June July August September October
Month-on-Month Inflation
-
RESEARCH & ANALYTICS
Disclaimer: This report represents solely the views, analysis,
and judgement of the Cepheus research team and does not necessarily
reflect the views or opinions of the Fund’s Managing Partners,
Advisors, or Investors.
19
MONETARY POLICY: Recent developments and outlook Monetary
growth: § Reserve money growth rose
sharply to near 40 percent as of end-September, though this
likely reflects temporary factors related to the currency
conversion. Broad money is growing at a more moderate pace of 19
percent on a year-on-year basis.
§ Net central bank credit to government stood at Birr 209bn as
of June 2020, and stayed unchanged to end-September, thus showing
zero growth for the quarter.
§ Seen over a three-year time
frame, broad money growth has been trending downward, while
growth in reserve money has moved in the opposite direction,
especially within the past year. The latter partly reflects the
liquidity support provided by the central bank to help cushion
COVID impacts on the banking sector and real economy.
Bond issuance:
§ Outstanding bond issuance
rose 20 percent last year and now stands at Birr 405bn as of
end-June 2020.
§ While most of the outstanding bond issues reflect SOE
activity, regional governments have raised their bond issuances
last year, up to an outstanding stock of Birr 46bn as of June
2020.
Figure 7B: Year-on-Year Growth Rates of Key Monetary
Variables
Source: NBE
30% 30% 30% 29%
25%
22%20% 20%
21% 20%18.6%
17.0%19.2%
25%
18%16%
19%
15%13%
10%
15%
7%
16%
25.3%22.8%
39.9%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19
Dec-19 Mar-20 Jun-20 Sep-20
Y-o-Y Growth Rates of Monetary Variables for the Past Ten
Quarters
Broad Money Reserve Money
Figure 7A: Broad Money and Reserve Money (Birr bns)
Jun-17 Jun-18 Jun-19 Sep-19 Jun-20 Sep-20Y-o-Y
% ChangeBroad Money 573.4 740.6 886.8 909.9 1,037.6 1,085.0
19.2%
o/w Domestic credit 631.1 784.6 963.7 999.2 1,176.9 1,237.2
23.8%o/w Net foreign assets 38.0 39.4 14.5 (10.8) (4.7) (28.1)
160.7%
Reserve Money 146.3 174.2 200.7 186.8 246.5 261.4 39.9%o/w
Currency in circulation 94.2 112.9 121.8 124.0 140.5 124.4 0.3%o/w
Bank deposits at NBE 52.0 61.3 78.9 62.8 106.0 136.9 118.0%
Source: NBE
Figure 9: Outstanding Bonds Issued as of June 2020
Jun-17 Jun-18 Jun-19 Jun-20Y-o-Y
% ChangeTotal Bonds Outstanding (Birr bn) 237.8 291.4 338.6
405.2 20%
Public Enterprises 198.2 245.5 306.8 359.0 17%EEPCO 179.3 216.4
263.9 302.3 15%Railways Corporation 18.9 29.2 42.9 56.7 32%
Regional Government 39.6 45.9 31.8 46.2 45%Addis Ababa City Govt
39 45.3 31.2 45.7 47%Other Regions 0.6 0.6 0.6 0.51 -11%
Source: NBE
-
RESEARCH & ANALYTICS
Disclaimer: This report represents solely the views, analysis,
and judgement of the Cepheus research team and does not necessarily
reflect the views or opinions of the Fund’s Managing Partners,
Advisors, or Investors.
20
BANKING: Recent developments and outlook § Deposits rose sharply
in recent
months, and were up 8 percent for the quarter and 25 percent
year-on-year. This has occurred even before the end of the currency
conversion, which is to be completed in December 2020.
§ Bank lending also continues to show strong growth, though much
more so at the private banks rather than at CBE.
§ Seen over a longer time frame, deposit growth has shown
erratic patterns (lows of 15 percent and highs of 28 percent over
the past three years), while lending growth has generally stayed
within the range of 25-30 percent on an annual basis.
FISCAL POLICY: Recent developments Revenue performance § Revenue
collections in the first
quarter exceeding government targets, and were up 30 percent
from year-ago levels.
Figure 10A: Banking Trends (Birr bns)
Jun 2016 Jun 2017 Jun 2018 Jun 2019 Sep 2019 Jun 2020 Sep
2020
Y-o-Y
% Change
Bank deposits 437 568 729 899 918 1,043 1,148 25.1%
CBE 290 366 453 541 538 595 655 21.8%Private Banks 147 202 276
358 380 447 493 29.9%
Bank loans outstanding 232 290 355 456 475 590 623 31.2%
CBE 141 157 177 197 199 243 248 24.4%Private Banks 91 133 179
259 276 347 375 36.2%
Other indicators--all banks
Assets 575 745 914 1,165 1,196 1,379 1,476 23.4%Paid-up capital
24 61 66 74 75 82 83 11.3%Branches 3,145 3,888 4,442 5,164 5,346
5,965 6,124 14.6%
Source: Bank Annual Reports and Bank Survey Data
Figure 10B: Bank Deposit, Loans Levels, and Year-on-Year Growth
Rates for the Past Ten Quarters
Source:Bank Annual Survey Data
28%
25%24%
15%
23% 23%
21%
18%
16%
25%
23%
25%
30%
28% 28%
30%30%
32%
29%
31%
10%
15%
20%
25%
30%
35%
-
50
100
150
200
250
300
350
400
450
500
550
600
Jun 2018 Sep 2018 Dec 2018 Mar-19 Jun 2019 Sep 2019 Dec 2019 Mar
2020 Jun 2020 Sep 2020Bank Deposit Growth Bank Loan Growth
Figure 11A: Revenue Performance, Birr bns
FY 2019-20 Quarter 1
FY 2020-21 Quarter 1 % change
Taxes on domestic activity 30.7 61.00 98.7% Direct tax … … …
Indirect tax … … …
Trade taxes 26.5 13.40 -49.4% Customs tarrif and tax … … … Non
tax revenue … … …
Lottery Sales 0.1 … …
TAX REVENUE TOTAL: 57.3 74.4 29.8%
Source: Ministry of Revenue, Ministry of Finance
-
RESEARCH & ANALYTICS
Disclaimer: This report represents solely the views, analysis,
and judgement of the Cepheus research team and does not necessarily
reflect the views or opinions of the Fund’s Managing Partners,
Advisors, or Investors.
21
FISCAL POLICY: Recent developments § While there had been a
sharp
drop in tax collections due to COVID in the April-June quarter,
this is now no longer the case and revenue collections have
recovered strongly.
§ Even after accounting for seasonally high tax payments in the
June-September period, collections were up from Birr 52bn in Q1 of
last fiscal year to Birr 74bn in Q1 of this fiscal year.
§ Final budget performance data for the 2019-20 fiscal year show
a deficit of Birr 89bn, or close to 2.6 percent of GDP.
Public debt, in USD terms: § Outstanding public sector debt
has risen by $1.2bn over the past year and now stands at $54.9
bn; slightly more than half of public debt is now owed to external
creditors.
Figure 11B: Quarterly Revenue Performance (Birr bns)
Source: Ministry of Revenue
44
54
47
52
57
70
56
50
74.4
40
45 50
55
60
65 70
75
80
2018
/19(Q
1)
2018
/19(Q
2)
2018
/19(Q
3)
2018
/19(Q
4)
2019
/20(Q
1)
2019
/20(Q
2)
2019
/20(Q
3)
2019
/20(Q
4)
2020
/21(Q
1)
Quarterly Revenue Performance
Figure 13: Public Debt, USD bns
Jun-17 Jun-18 Jun-19 Jun-20 % of Total Total Public Debt 45.8$
49.5$ 53.7$ 54.9$ 100.0%
External debt 23.3$ 25.9$ 27.0$ 28.7$ 52.2%Central Government
13.0$ 14.7$ 16.0$ 17.8$ 32.4%State Owned Enterprises 10.4$ 11.2$
11.1$ 10.9$ 19.8%
Domestic Debt 22.4$ 23.6$ 26.7$ 26.2$ 47.8%Central Government
10.3$ 11.0$ 12.5$ 12.4$ 22.5%State Owned Enterprises 12.1$ 12.6$
14.2$ 13.9$ 25.2%
Source: MoFEC Public Debt Bulletin
Figure 12: Budget Performance, Birr bns
FY 2018-19 FY 2019-20 Percent change
Total revenue and grants 236.0 276.1 17.0%Total Revenue 218.3
253.3 16.0%Grants 17.6 22.8 29.2%
Total Expenditure 308.5 364.7 18.2%Current Expenditure 85.6
100.7 17.6%Capital Expenditure 85.7 112.0 30.8%Regional Transfers
137.2 151.9 10.7%
Deficit, Birr bns (72.5) (88.5) 22.1%Deficit, Percent of GDP
-2.7% -2.6% …GDP (Birr bns) 2,696 3,375 25.2%
Source: NBE Quarterly Bulletin
-
RESEARCH & ANALYTICS
Disclaimer: This report represents solely the views, analysis,
and judgement of the Cepheus research team and does not necessarily
reflect the views or opinions of the Fund’s Managing Partners,
Advisors, or Investors.
22
Public debt, relative to GDP: § Relative to GDP, public debt
is
down to 51 percent as of end-June 2020, a notable drop from the
59 percent two years ago.
External debt stocks § External debt rose by $1.7bn
during the year, and now stands at $28.7bn. Despite the nominal
increase, external debt fell slightly (to 27%) relative to GDP.
§ Only 62 percent of external debt is owed by the Government,
with the remainder owed by state enterprises.
Figure 14: Public Debt, % GDPJune 2017 June 2018 June 2019 June
2020
Total Public Debt 56.1% 59.0% 56.0% 51.1%
External debt 28.6% 30.9% 28.2% 26.7%Central Government 15.9%
17.5% 16.6% 16.6%State Owned Enterprises 12.7% 13.4% 11.6%
10.1%
Domestic Debt 27.5% 28.1% 27.8% 24.4%Central Government 12.7%
13.1% 13.1% 11.5%State Owned Enterprises 14.9% 15.0% 14.8%
12.9%
Memo items: GDP, Birr bns 1,833 2,200 2,696 3,375 Exchange rate,
year avg 22.5 26.2 28.1 31.4 GDP, USD bns 81.6 83.9 95.9 107.4
Source: MoFEC Public Debt Bulletin
Figure 15: External Debt (Public Sector), In USD bns
June 2017 June 2018 June 2019 June 2020 % of TotalTotal External
Debt of Public Sector, USD bns 23.3$ 25.9$ 27.0$ 28.7$ 100.0%
Government 13.0$ 14.7$ 16.0$ 17.8$ 62.1%
EAL & Ethio-telecom 6.9$ 7.6$ 7.3$ 7.2$ 25.3%
Other State Enterprises 3.4$ 3.6$ 3.8$ 3.6$ 12.6%
Total External Debt of Public Sector, % GDP 28.6% 30.9% 28.4%
26.7% …Government 15.9% 17.6% 16.7% 16.6% …
EAL & Ethio-telecom 8.5% 9.1% 7.6% 6.7% …
Other State Enterprises 4.2% 4.3% 4.0% 3.4% …
GDP, USD bns 81.6$ 83.9$ 95.9$ 107.4$ …
Source: MoFEC Public Debt Bulletin
-
RESEARCH & ANALYTICS
Disclaimer: This report represents solely the views, analysis,
and judgement of the Cepheus research team and does not necessarily
reflect the views or opinions of the Fund’s Managing Partners,
Advisors, or Investors.
23
BALANCE OF PAYMENTS (BOP): Recent developments § Full BOP data
for last year show an
overall deficit of around $700mn (when taking into account
changes in banking system net foreign assets). The loss in fx
reserves during the 2019-20 fiscal year was, however, only about
$200mn.
§ On the positive side, FY 2019-20 showed a much lower trade
deficit, an improved services account, and a lower current account
deficit. The drop in service receipts (from lower tourism) was
offset by an even larger drop in service imports, allowing an
overall improvement in the net services balance.
§ Negative trends were registered in
remittances, grants, and FDI—all three of which were down
between 17-30 percent.
FX reserves: § Fx reserves data (available to
September 2020) show central bank reserves at $3.3bn, up
somewhat from the $3.2bn at end-June and notably higher than the
$2.6bn than the year-ago levels.
Figure 16: Balance of Payment--recent outturns, latest available
data
Balance of Payments in USD mns FY 2018-19 FY 2019-20 Percent
change
Exports 2,667 2,988 12%Imports 15,112 13,881 -8%Trade Balance
(12,445) (10,894) -12%
Services, net (551) (188) -66%Non-factor services, net 39 419
976%
Exports of non-factor services 4,949 4,664 -6%Imports of
non-factor services 4,910 4,245 -14%
Income, net (590) (607) 3% O/w Gross official int. payment 669
649 -3% Dividend - -
Private transfers, net 6,375 5,625 -12%Remittances 5,693 4,722
-17%
Current account balance excluding grants (6,621) (5,456)
-18%Official transfers, net 2,087 1,488 -29%
Current account balance including grants (4,534) (3,969)
-12%
Capital account 4,840 4,147 -14%Official Long-term Capital, net
1,341 1,947 45%
Disbursements 1,529 2,148 40%Amortization 188 200 7%
Other public long-term capital 74 (234) -418%Private sector,
long term 264 164 -38%Foreign Direct Investment, net 3,015 2,419
-20%Short term Capital 146 (149) -202%
Errors and omissions (1,247) (909) -27%
Overall balance (942) (730) -22%
Financing 942 730 -22%
Reserves [ Increase(-), Decrease (+)] 942 730 -22% Central Bank
(NFA) 917 667 -27%
Asset (568) 305 -154% Liabilities 1,484 362 -76%
Commercial Banks (NFA) 25 63 153%
Source: NBE Quarterly Bulletin
Figure 17: FX Reserve:, NBE and Commercial Banks (USD mns)
Source: NBE
$1,118 $1,011 $944 $987 $887 $754 $750
$1,005 $904
$3,745 $3,958 $3,920
$3,415
$2,597
$2,965
$2,450
$3,209 $3,277
$-
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
$4,500
2018-19(Q1) 2018-19(Q2) 2018-19(Q3) 2018-19(Q4) 2019-20(Q1)
2019-20(Q2) 2019-20(Q3) 2019-20(Q4) 2020-21(Q1)
FX Reserve:, NBE and Commercial Banks (USD mns)
Banks NBE
-
RESEARCH & ANALYTICS
Disclaimer: This report represents solely the views, analysis,
and judgement of the Cepheus research team and does not necessarily
reflect the views or opinions of the Fund’s Managing Partners,
Advisors, or Investors.
24
TRADE PERFORMANCE: Recent developments Export performance: §
Gold exceeded coffee exports this
past quarter, though this may not last as seasonal coffee
exports pick up over the coming months.
§ As before, besides gold, the other top exports were
agricultural products—including flowers, chat, oilseeds and
pulses.
§ Electricity exports were near
$25mn for the quarter and appear on track to reach $100mn in
year-total exports.
§ Manufacturing exports performed
poorly during the quarter, with declines seen in textiles,
leather, meat, electronics, and construction inputs.
§ In terms of growth rates, besides
gold, the other fastest growing export categories were in
electricity and oilseeds.
§ Non-gold exports showed negative growth overall (-12 percent),
which shows underlying weaknesses outside of the few large product
categories.
Figure 18A: Export Performance FY 2020-21 First Quarter
Ranked by USD levels this yearFY 2019-20
Quarter 1FY 2020-21
Quarter 1Percent Change
Total Exports 722.8 834.7 15.5%
Gold 6.1 203.30 3208%Coffee 232.1 185.34 -20%Flower 115.4 102.46
-11%Chat 92.5 94.69 2%Oil Seeds 53.9 58.02 8%Pulses 48.7 46.71
-4%Textile & Textile Products 51.8 41.45 -20%Elecricity 10.0
23.27 132%Meat & Meat Products 18.5 15.97 -14%Others 11.4 13.41
18%Fruits & Vegetables 16.4 13.23 -19%Live Animals 24.2 12.40
-49%Leather and Leather Products 23.6 9.28 -61%Electronics 8.1 7.69
-5%Spices 4.3 3.24 -25%Cereals and flour 0.7 2.40 260%Natural Gum
2.2 0.79 -65%Chemicals & Construction Inputs 2.3 0.69 -70%Bees
Wax 0.5 0.38 -30%
Source: MOTI, ERCA
Figure 18B: Export Performance--Ranked by Growth Rate
Ranked by growth rate:FY 2019-20
Quarter 1
FY 2020-21
Quarter 1
Percent
change
Total Exports, USD mns 723 835 15.5%
Gold 6.1 203.30 3208%Cereals and flour 0.7 2.40 260%Elecricity
10.0 23.27 132%Others 11.4 13.41 18%Oil Seeds 53.9 58.02 8%Chat
92.5 94.69 2%Pulses 48.7 46.71 -4%Electronics 8.1 7.69 -5%Flower
115.4 102.46 -11%Meat & Meat Products 18.5 15.97 -14%Fruits
& Vegetables 16.4 13.23 -19%Textile & Textile Products 51.8
41.45 -20%Coffee 232.1 185.34 -20%Spices 4.3 3.24 -25%Bees Wax 0.5
0.38 -30%Live Animals 24.2 12.40 -49%Leather and Leather Products
23.6 9.28 -61%Natural Gum 2.2 0.79 -65%Chemicals & Construction
Inputs 2.3 0.69 -70%
Source: MOTI, ERCA
-
RESEARCH & ANALYTICS
Disclaimer: This report represents solely the views, analysis,
and judgement of the Cepheus research team and does not necessarily
reflect the views or opinions of the Fund’s Managing Partners,
Advisors, or Investors.
25
Trade performance… continued: § Coffee exports are
seasonally
low at this time of year, but nonetheless show a slight decline
from year-ago levels.
§ Trends in gold exports show
rising NBE purchase prices helping bring about big jumps in
monthly export values.
§ Due to COVID-related cutbacks
in foreign orders, industrial park exports fell by half between
February and April 2020, but have since been showing a gradual
recovery.
Figure 18E: Industrial Parks Exports: Quarterly Trends since
2018
Source: EIC
15 15 15 16 16
14 13
7
10 10
15 14
11
-
2
4
6
8
10
12
14
16
18
Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20
Jun-20 Jul-20 Aug-20 Sep-20
Industrial Parks Exports ($mns)
Figure 18C: Coffee Exports--Monthly Trends Since Year Ago
($mns)
Source: MOTI
52 47
34 43
57
97
104
97.95 91.1
64.172.9
48.3 45.9
-
20
40
60
80
100
120
Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20
Jul-20 Aug-20 Sep-20 Oct-20
Coffee Exports--Month Trends Since Year Ago
Figure 18D; Monthly Gold Export Value and Purchasing Price
Source: MOTI, NBE
2.7 0.8 0.7 1.6
5.1 3.2 0.9
9.4
63.3
54.7 51.5
71.5 71.5
60.3 61.9
1,110
1,210
1,310
1,410
1,510
1,610
1,710
1,810
-
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
Aug-1
9
Sep-1
9
Oct-1
9
Nov-1
9
Dec-1
9
Jan-20
Feb-2
0
Mar-
20
Apr-2
0
May
-20
Jun-2
0Ju
l-20
Aug-2
0
Sep-2
0
Oct-2
0
Montly Gold Export Value and Purchasing Price
Value(USD mns) End month Gold purchasing price
-
RESEARCH & ANALYTICS
Disclaimer: This report represents solely the views, analysis,
and judgement of the Cepheus research team and does not necessarily
reflect the views or opinions of the Fund’s Managing Partners,
Advisors, or Investors.
26
Trade performance… continued: Import performance: § Imports
continue to show
declines over the past quarter, even excluding certain
categories such as fuel and aircraft.
§ Lower global oil prices continue to allow for a substantial
lower fuel import bill, which is down 36 percent from year-ago
levels.
§ Consumer goods, particularly in
the ‘other foods’ category, are among the few import items
showing large year-on-year growth rates.
§ Capital goods imports are also
falling across all sub-categories, suggesting reduced investment
ratios for the broader economy unless this is reversed in the
coming quarters.
Figure 19A: Import Performance
FY 2019-20 Quarter 1
FY 2020-21Quarter 1 % Change
Total Imports 3,746 3,480 -7.1%
Raw Materials 42.8 34.9 -18%Semi-finished Goods 707 572.5
-19%
Chemicals 201.9 133.1 -34%Fertilizers 22.6 9.6 -58%Textile
Materials 28.1 29.6 6%Others 454.8 400.2 -12%
Fuel 594 377.9 -36%Petroleum Products* 574 358.3 -38%Others 20
20 1%
Capital Goods 1,020.3 966.1 -5% Transport 138.2 106.6 -23%
Aircraft 15.8 14.7 -7% Agricultural 16.6 20.8 25% Industrial
865.5 838.7 -3%
Consumer Goods 1,149.6 1,491.5 30% Durables 281.6 207.4 -26%
o/w Car and Other Vehicles 66.5 4.7 -93% Non-durables 868.1
1,284.2 48%
Cereals 287.2 195.7 -32%Other Food 149.3 374.6 151%Medical &
Pharmaceuticals 149.9 110.4 -26%Textile Fabrics 109.1 126.9
16%Others 172.5 476.6 176%Miscellaneous 232.5 37.3 -84%
Non-fuel, non-aircraft imports 3,136.84 3,087.75 -2%
Source: MOTI, ERCA
Figure 19B: Capital Goods Imports by sub-components
FY 2019-20 Quarter 1
FY 2020-21Quarter 1
Percent change
Capital Goods Imports 1,020 966 -5.3%
Of which:Transport capital goods 138 107 -23%
Aircraft imports 16 15 -7%Non-aircraft transport imports 122 92
-25%
Industrial capital goods 865 839 -3%Agricultural capital goods
17 21 25%
Capital Goods excl transport 882 859 -3%
Source: MOTI, ERCA
-
RESEARCH & ANALYTICS
Disclaimer: This report represents solely the views, analysis,
and judgement of the Cepheus research team and does not necessarily
reflect the views or opinions of the Fund’s Managing Partners,
Advisors, or Investors.
27
ETHIOPIA’S SOVEREIGN BOND: Recent developments and outlook
Sovereign Bond Yields: § The yields on Ethiopia’s sole
internationally traded sovereign bond (maturing in 2024) had
shown a steady drop in the June to September period, but
subsequently rose sharply since the start of conflict in early
November.
Sovereign Bond Prices: § Prices on the bond have now fallen
below par as of November, implying several percentage points of
losses for bondholders.
Spreads vs US Treasuries: § The bond’s spread vs US 10-year
Treasuries remains above 600 basis points, but has not risen as
much as yields given the uptick in 10-year treasury yields.
Figure 20: Ethiopia's Soveregn Bond--Yield to Maturity
Source: FactSet
5.50
4.85 4.75
5.28
9.38
10.06
8.55
6.75 6.876.37 6.52 6.48
7.35
4.50
5.50
6.50
7.50
8.50
9.50
10.50
Nov-1
9De
c-19
Jan-20
Feb-2
0
Mar-2
0Ap
r-20
May-2
0Jun
-20Jul
-20Au
g-20
Sep-2
0Oc
t-20
Nov-2
0
Ethiopia's Sovereign Bond--Yield to Maturity
Figure 21: Ethiopia's Sovereign Bond--End Month Prices
Source: FactSet
104.9
107.7 108.0 105.6
89.7 87.5
92.9
99.5 99.0 100.9 100.4 100.5
97.5
87.0
92.0
97.0
102.0
107.0
112.0
Nov-1
9De
c-19
Jan-20
Feb-2
0
Mar-2
0Ap
r-20
May-2
0Jun
-20Jul
-20Au
g-20
Sep-2
0Oc
t-20
Nov-2
0
Ethiopia's Sovereign Bond--End Month Prices
Figure 22: Ethiopia's Sovereign Bond--Spread vs US
Treasuries
Source: FactSet
387.9
317.3 343.4
435.8
896.0
971.2
825.0
645.4 666.5 608.9 624.0 625.5 616.87
310.0
410.0
510.0
610.0
710.0
810.0
910.0
1,010.0
Nov-1
9De
c-19
Jan-20
Feb-2
0
Mar-2
0Ap
r-20
May-2
0Jun
-20Jul
-20Au
g-20
Sep-2
0Oc
t-20
Nov-2
0
Ethiopia's Sovereign Bond--Spread vs US Treasuries
-
RESEARCH & ANALYTICS
Disclaimer: This report represents solely the views, analysis,
and judgement of the Cepheus research team and does not necessarily
reflect the views or opinions of the Fund’s Managing Partners,
Advisors, or Investors.
28
EXCHANGE RATE: Recent developments and outlook § Exchange rate
movements over
the past five months have averaged 62 cents per month, and
crossed 38 Birr per USD in early November 2020.
§ After a continuous rise since July
2019, the annual rate of depreciation peaked at 28 percent in
October 2020, but has since begun to show a slightly slower pace of
change—of 24 percent—as of November 2020.
Figure 23A: Trends in Exchange Rate: Last 12 Months
Source: CBE website
29.03 29.15 29.28 29.43 30.62
31.80 32.06 32.28 32.81 33.53
34.16 34.93 35.27
36.16 36.75 37.55 38.05
20.00
22.00
24.00
26.00
28.00
30.00
32.00
34.00
36.00
38.00
40.00
Jul-19
Aug-1
9Se
p-19
Oct-1
9
Nov-1
9De
c-19
Jan-20
Feb-2
0
Mar-2
0Ap
r-20
May-2
0Jun
-20Jul
-20Au
g-20
Sep-2
0Oc
t-20
Nov-2
0
Trends in Exchange Rate: Last 12 Months
Figure 23B: Birr Depreciation Rate from year-ago levels (%)
Source: CBE, Cepheus Research
6.1% 6.1% 6.1% 6.1%
9.8%
13.4%13.7%13.9%15.2%
17.1%18.7%
20.8%21.5%
24.0%25.5%
27.6%
24.3%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
Jul-19
Aug-19
Sep-19Oct-19
Nov-19Dec-19Jan-20
Feb-20
Mar-20Apr-20
May-20Jun-20
Jul-20
Aug-20
Sep-20Oct-20
Nov-20
Depreciation Rate from Year-Ago Levels
-
RESEARCH & ANALYTICS
Disclaimer: This report represents solely the views, analysis,
and judgement of the Cepheus research team and does not necessarily
reflect the views or opinions of the Fund’s Managing Partners,
Advisors, or Investors.
29
Exchange rate developments and outlook: § The gap between
official and
parallel market rates remains around 25 percent in recent
quarters.
§ With moderating inflation and
significant USD depreciation versus other global currencies in
recent months (both of which lessen the need for Birr
depreciation), we expect 50 to 60 cents of monthly Birr
adjustments—on average—for the period ahead. This translates into
year-on-year depreciation rates of around 20 percent, sufficient to
fully cover anticipated rates of inflation. Accordingly, we see the
exchange rate at close to 39 Birr/USD by end-December 2020 and just
under 42 Birr/USD by June 2021.
Figure 24: Exchange Rate: Forecasts to June 2021
Actuals: End Month
Buying Rate:
Birr/USD
Monthly Change:
In Birr
Depreciation from
year agoOctober 2019 29.43 0.16 6.1%