Private Sector Boosts Ethiopia's Growth

This year’s World Economic Forum for Africa is being held in Addis Ababa, Ethiopia, a nod to the Horn of Africa country’s economic performance in the past decade and an acknowledgement by the world’s business leaders of the potential of the continent’s second most populous nation. The forum, which will be held from May 7-11, 2012, is expected to attract hundreds of business leaders and media from around the world. IFC Executive Vice President and CEO Lars Thunell and other top executives will be on hand, highlighting the corporation’s engagement with Ethiopia.

Ethiopia is one of the fastest-growing economies in the world and is Africa’s second most populous country, possessing a “deep culture and history,” noted Robert Greenhill, Managing Director and Chief Business Officer of the World Economic Forum. “We know that many of our members from Africa and around the world are extremely interested in the opportunity to get a view of what is going on in that exciting country. We are very confident that the Addis Ababa meeting will be very successful.”

Cementing a Deal

IFC’s flagship project in Ethiopia is the Derba Cement Factory in which IFC has invested $55 million. The factory, which opened earlier this year, is expected to go a long way in meeting Ethiopia’s growing need for cement.

IFC’s loan to Derba, part of $200 million debt financing package from international financial institutions and a local bank, has helped the company build a new plant that addresses Ethiopia’s cement shortage.

The plant has a capacity of up to 2.5 million tons per year and is located about 70 kilometers from Addis Ababa. The increased production capacity will help Ethiopia reduce its reliance on expensive imports. IFC forecasts the project will create 500 new jobs and generate up to 10,000 more, as construction projects switch to locally-produced cement. IFC also worked with the company to reduce the carbon footprint of the new plant—a complex challenge for an industry notorious for pollution.

Helping Coffee Farmers

IFC is also involved in Ethiopia in trying to make sure that the world’s favorite picker upper – coffee – brings benefits to Ethiopia’s growers. Coffee is the country’s largest export. However, many Ethiopian coffee farmers struggle to take full advantage of their valuable crop. One of their key constraints is that banks rarely provide loans to farmers with little or no collateral.

IFC has set up a program with Ethiopian banks to increase access to finance for farmers.  Through the program, IFC provides a guarantee facility of up to $10 million for banks willing to loan to coffee farmer cooperatives.  The loans will help farmers process coffee, get new technologies and meet working capital needs, increasing output and revenues.

Warehouse Receipts

Another IFC project includes an innovative plan to use agricultural commodities as collateral for famers. Agricultural commodities are stored in warehouses before shipment. In most cases, farmers need to sell their product earlier than they would prefer in order to meet their financial needs, or to use their land and equipment as collateral.

In April 2009, IFC launched the Ethiopia chapter of our Global Warehouse Financing Program.  Warehouse financing is a secured lending technique that allows farmers to borrow money based on commodities they produce. Upon depositing their goods in a warehouse, farmers are issued a warehouse receipt. The receipt can then be as portable collateral to request loans from banks participating in the program.

Warehouse financing allows farmers more flexibility in the timing of their sales to protect themselves from price seasonality, enhancing their incomes.

A key strategic partner of the program is the Ethiopia Commodity Exchange. Since its establishment in 2007, ECX has been improving the status of warehouse receipts by providing market integrity, guaranteeing product grade and quantity, and maintaining a central registry of receipts.

Local banks need to register as member at ECX to be involved in warehouse financing. So far, seven banks have joined the ECX membership, including United Bank, Commercial Bank of Ethiopia, and NIB. IFC provides financing guarantees to the banks on their warehouse lending portfolio, and has also committed advisory services to them.

IFC is also working in Ethiopia to develop leasing, credit information bureau and encourage private-public dialogue.