a financing map of ethiopia: the funding landscape for ... · becoming available in ethiopia, our...

Disclaimer:Thisreportrepresentssolelytheviews,analysis,andjudgementoftheCepheusresearchteamanddoesnotnecessarilyreflecttheviewsoropinionsoftheFund’sManagingPartners,Advisors,orInvestors.

Wereviewthescaleandscopeofthefinancinguniverse inEthiopia,focusing on its size and composition; funding sources and users;domestic versus foreign components; and finally the most promisinguntappedandunder-exploitedopportunitiesfortheyearsahead.Financing in Ethiopiahas traditionallybeen seen fromaperspectivethat focused on bank deposits and central bank funds as the mainsupply sources and government, state enterprises, and (to a lesserextent) private firms as the main users. In recent years, however,external financing has entered into the picture in substantialmagnitudes—bothindebtandinequityformsandchannelednotjusttogovernmentbutalsotostateenterprisesandprivatefirms.In this context, and focusing on the expanded financing universebecomingavailableinEthiopia,ourreviewrevealsthefollowing:

o FinancingSourcesandOutstandingStock:Asof2018,thetotalsupplyoffinancinginEthiopia—togovernment,stateenterprises,and private firms—was near Birr 2,746bn, or USD 100bn, andequivalentto125percentofGDP.Thistotalsupplyrosenearly3-foldinBirrtermsinthelastfiveyears,butmoremodestlyrelativetoGDP. The threebiggest sourcesarebank funds (Birr 816bn),foreignloans(Birr762bn),andforeignequity(Birr585bn).

o Financing Instruments: Loans are the primary intermediating

instrument,butforeignequityhasnowreachedaroundone-fifthoftotalfinancing.Ethiopiaalsoalreadyhasalargestockofbondsandbills,aroundBirr410bnorone-sixthoftotalfinancing.

o Financing Users: Looking only at domestic financing sources,

governmentandstateenterpirseshavebeenthedominantusers(roughlytwo-thirdsofthetotal).However,byameasureoftotalfinancingthatincludesforeigndebtandequity,wefindthattheprivate sector is nowthe largest financing recipient within theeconomy.

A Financing Map of Ethiopia: The funding landscape for future growth

RESEARCH & ANALYTICS



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Looking ahead, substantial shifts are to be expected in Ethiopia’sfinancing mix. We highlight ten untapped or largely under-exploitedareasthat(inourview)couldbecomingintothepictureinthenextfewyears—orpossiblyearlier:

Debtfinancing:

1. Governmentbondsissuedatmarketrates;2. Privatecompanybondsissuedtodomesticinvestors;3. Privatecompanyloanscontractedfromforeignlenders;4. Householdconsumerloanscontractedfrombanks;5. Localbanksissuingbondstothedomesticpublic;6. Localbankscontractingloansfromforeignlenders;

Equityfinancing:

7. SOEshareissuancetodomesticequityinvestors;8. SOEshareissuancetoforeignequityinvestors;9. Privatecompanyshareissuancetodomesticinvestors;10. Localbanks(minority)shareissuancetoforeigninvestors

Taken collectively, tapping into the ten financing segments abovepromisesasurgeinextrafundingavailableforinvestmentandgrowth.BasedontrenddepositgrowthandthecurrenttrajectoryseenforforeignloansandFDI,existing financingsourcesalreadygenerateclose toBirr450-500bn(~$15-$18bn,or20%-23%GDP) inannualnewfinancingforgovernment,stateenterprises,andtheprivatesector.Thetenemergingfinancing items above could—under certain reasonable assumptions—doublethisfigureoverthecourseofafewyears,allowingincrementalfinancingflowstoreachjustoveratrillionBirr(equivalentto45percentofcurrentGDP).Wethinksomeoftheaboveitems(no.1,2,4,5,7,9)willnotnecessarilyprovidenetnewsuppliesoffinancing(aswouldbethecase,forexample,whendomesticsaversswitchfrombankdepositsandmove into domestic bondsor equities), but at least four of the abovefinancingsegments(nos.3,6,8,10)wouldinvolveasubstantialinjectionof new and fx-denominated funds, which we attempt to quantify—inbroadordersofmagnitudes—intheremainderofthisnote.



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BackgroundEnsuringanadequatesupplyoffinancingandmakingitreadilyavailabletovarioususergroupshasbeen and remains a longstanding policy priority in Ethiopia.Aftermore than a decade of stronggrowth,financingisparticularlycriticalatthisjuncturetosustainEthiopia’seconomicmomentumand,looking at particular sub-sectors, to cover government spending needs (beyond its own-internallygeneratedresources,i.e.,revenues),toallowstateenterprisestocompletemajormega-projects,andto fuelprivate sectorexpansionacrossmultipleemerging sectors. Understanding the sources andusersofpastfinancingaswellastheoutlookforfuturefinancingisthusimportanttoaddresscurrentgaps,identifyrecenttrends,and—mostimportantly—exploreavailableandemergingopportunities.Financingsources:pastandpresentTraditionally,financinginEthiopiahasbeenseenfromaperspectivethatfocusedondomesticbankfundingasthemainsupplysourceandgovernment,stateenterprises,andprivatefirmsasthemainusers.Boostingfinancinginthiscontextmeantboostingnation-widebankdeposits(whichcomprised50%ofdomesticfinancing)andcentralbankfinancing(about20%oftotal).Withlargeexpansionsinbankbranches(upfrom1,724to4,757between2013and2018)andinthenumberofdepositors(upfrom10to33millionoverthesameperiod—seeAppendix),financialsectorpoliciesencouragedthecollection of low-cost deposits, be it to cover deficit financing for the government, infrastructurespendingforstateenterprises,orloansfortheprivatesector.

Table 1: Domestic Financing Sources, 2013-2018

Source: NBE and Cepheus Capital Research compilation

Pension funds 111

MFI funds47

DBE funds84

1,399

Currency outside banks86

467

575

716

880

1,103

NBE funds 255

Banks funds 816

0

200

400

600

800

1000

1200

1400

1600

2013 2014 2015 2016 2017 2018

Domestic Financing(Birr bn)

Pension funds MFI funds DBE funds Currency outside banks NBE funds Banks funds



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In recentyears, the country’s total stockof financinghasbroadenedwellbeyond the traditionalbank-centered focus. Inparticular,with themagnitudeofexternal financingbecoming increasinglymore important, the financing universe in Ethiopia, i.e., the available stock of funds available togovernments,stateenterprises,andprivatefirms(beyondtheirowninternally-generatedfunds)isnolongerbestcapturedbysimplylookingatthestockofdomesticbankdepositspluscentralbankfunds.1Takinganexpandedviewoftotalfinancing,asofmid-2018,thetotalsupplyoffinancinginEthiopia—togovernment,stateenterprises,andprivatefirms—isontheorderofBirr2,746bn(USD99.9bn)andequivalentto125percentofGDP.Thissumoffinancinghasrisenalmostthree-foldinBirrtermssince2013,butmuchmoremodestly(from99%to125%)relativetoGDP[SeeTables2.1,2,2,2.3].Bankdepositsandcapitalstillremainedthelargestcomponent(Birr816bn),butarecloselyfollowedbytwolargesourcesintheformofforeignloans(Birr762bn),andforeignequity(Birr585bn).Withtheriseinthelattertwosources,foreignfinancing—takingforeignloansandequitycollectively—isnowlargerthanthestockoffinancingprovidedfromdomesticsources.

1Governmentrevenueconstitutesthe‘internallygeneratedfunds’ofgovernmentandisthusnota‘financing’itempertheconventionsusedforthisnote.Similarly,internallygeneratedfundsofstateenterprisesandprivatefirmsmaycoveralargeshareoftheiroperations/investments,butfinancingrepresentstheirneedforfunds—beyondtheirrecurringresources—toinvestorexpand.

Table 2.1 Total Supply of Financing in Ethiopia

Source: NBE and Cepheus Capital Research compilation

NBE 255

Foreign loans762

2,746

Foreign equity585

1,044

1,371

1,715

2,108Banks 816

-

500

1,000

1,500

2,000

2,500

3,000

2014 2015 2016 2017 2018

Total Stock of Financing (Birr bn)

MFI DBE Currency outside banks Pension funds NBE Foreign loans Foreign equity Banks



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InstrumentsThe composition of financing instruments shows domestic bank loans remained the dominantinstrumentusedinrecentyears,throughamuchgreaterresortisseenwithrespectto:(1)domesticbondsandbills;(2)foreignloansandbonds;(3)foreignequity.WesummarizedtheseshiftsbelowinTables3.1and3.2.

Table 2.2 Total Stock of Financing(USD bn)

Source: NBE and Cepheus Capital Research Compilation

$53.7 $67.1

$79.5 $92.0 $99.9

$-

$20.0

$40.0

$60.0

$80.0

$100.0

$120.0

2014 2015 2016 2017 2018

Total Stock of Financing (USD bn)

Table 2.2 Total Stock of Financing(% of GDP)


98% 106%109% 115%

125%

0%

20%

40%

60%

80%

100%

120%

140%

2014 2015 2016 2017 2018

Total Stock of Financing (% of GDP)

3.1 Financing Instruments (Birr bn)

Source: NBE, MOFEC and Cepheus Capital Research compilation

Residuals/Unallocated

343

Domestic T-bills111

Domestic Bonds299

Foreign Equity585

2,746

Domestic Loans 646

1,044

1,371

1,715

2,108Foreign loans

762

-

500

1,000

1,500

2,000

2,500

3,000

2014 2015 2016 2017 2018

Financing Instruments (Birr bn)

Residuals/Unallocated Domestic T-bills Domestic Bonds

Foreign Equity Domestic Loans Foreign loans



6

FinancingusersLooking at the users of financing, while the public sector still dominates the use of traditionalfinancing sources (bank deposits and central bank funds), an expanded view of total financingactuallyshowsasizeableshareofprivatesectorbeneficiaries.Inparticular,lookingatthestockoffinancing,thesharesamonggovernment/stateenterprises/privatesectorreveala28%/24%/35%split.[Table4.1and4.2]

Table3.2: Financing Instruments (% of Total)

Source: NBE, MOFEC, and Cepheus Capital Research compilation

16% 13% 13% 12% 13%3% 3% 3% 3% 4%11% 12% 11% 12% 11%

15% 16% 19% 20% 21%

24% 25% 24% 25% 24%

29% 32% 30% 28% 28%

0%

20%

40%

60%

80%

100%

120%

2014 2015 2016 2017 2018

Financing Instruments (% of total)

Residuals/Unallocated Domestic T-bills Domestic Bonds

Foreign Equity Domestic Loans Foreign loans



7

Table 4.1 Users of Fnancing (Birr bn)


343

385

585

2,746

661

2,108 773

-

500

1,000

1,500

2,000

2,500

3,000

2017 2018

Users of Financing (Birr bn)

Residual/unallocated Private Borrowers Private Investees SOEs Government

Table 4.2: Users of Financing (% of total)


12% 12%

14% 14%

20% 21%

25% 24%

28% 28%

0%

20%

40%

60%

80%

100%

120%

2017 2018

Users of Financing (% of Total)

Residuals Private Borrowers Private Investees SOEs Government



8

FinancingMap—SUMMARYOFSOURCES,INSTRUMENTS,andUSERSTakenalloftheabovecomponentstogether,Ethiopia’sfinancinguniversecanbesummarizedpertheFinancingMapbelow—showingthefullscopeandscaleofsources, instruments,andusersofdomestic and external financing as of June 2018. These figures are intended to capture the fulluniverseoffinancingavailablewithinEthiopia,representgrossfinancingstocks,andalsoreflectimpactofrecentexchangeratechanges(fortheforeignamountsconvertedtoBirrterms).



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TABLE 5A: Ethiopia's Overall Financing Map: Cumulative Stock

Sources of FundsBirr 2,746 bnUSD 99.9bn

125% of GDP

Uses of Fund Birr 2,746 bnUSD 99.9bn

125% of GDP

Currency outside banks86 bnDBE

84 bn

Source: MoFEC Public Debt Data and NBE Banking/FDI data; Cepheus classification

DOM

ESTI

C FI

NANC

ING

Bank Deposits and Capital816 bn

NBE(Excl currency)

255 bn

Pension Funds111 bn

Micro-finance deposits and capital

47 bn

Foreign loans762 bln

Government 773bn

SOEs661bn

Pivate firms as Investees 585bn

Private firms as borrowers385bn

Residuals/Unallocated342bn

Foreign equity 585 bln

FORE

IGN

FINA

NCIN

G

FInancial Intermediation by Instrument

Domestic Debt

Loans 646 bn

Bonds: 410bn

Foreign Debt

Loans: 735bn

Bonds: 27bn

Foreign Equity

Equity: 585bn



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Note:ThedifferencefromthetotalBirr2,746bninTable5Areflectstheresidual/unallocatedportionsofthetotalfinancingstock(asalldepositsorcapitalarenotdeployedtousers),aswellastheimpactofsomedouble-countingthatwillbeprevalentinthedata(eggrossdepositlevelscould,temporarily,includepensionfunds/FDI/foreignloansuntiltheseareultimatelydeployedtoend-users).

TABLE 5B : Cumulative Stock of Financing Used by Key Sectors--June 2018 (Birr bns)

GOVERNMENT STATE ENTERPRISES PRIVATE FIRMSDescription Description Description

GOVERNMENT STATE ENTERPRISES PRIVATE FIRMS

2373

Government State Enterprises Private FirmsTotal Financing Utilized: 743 661 969 2373

Debt financing: 743 661 384 1788 o/w Domestic debt 341 356 329 1026

o/w External debt 402 305 55 762

Equity financing: 0 0 585 585


0

585

646

380

735

27

Existing Financing Users

Description of Financing Types

OWN

FUND

S

By instrument

FINAN

CING

DEBT

Dom

estic

Deb

t Loa

ns

EQUI

TY Domes

tic Eq

uity

…

Exte

rnal

Equit

y

…Bo

nds

246

207 110 329

134

Exte

rnal

Debt

Loan

s

375 305 55

Bond

s 27 0

0 585

0



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FinancingFlowsFinancingflows,i.e.,lookingattheyear-to-yearchangesratherthanthecumulativefinancing,showabroadlysimilarpictureas thedataon total financingstocks reviewedabove. Inparticular,withrespect tosources, thethreemain items includebank funds, foreign loans,and foreignequity (thelattertwoare inflatedsomewhatduetotheBirrdevalution in late2017,butthatalsoreflectsrealconversionimpactsofthefinancingsupplywhenconvertedinlocalcurrencyterms).Ontheuserside,equityinflowsintoprivatefirmsareseentobeaslargeasfinancingtogovernmentforFY2017-18.

TABLE 6A: Financing Flows for FY 2017/18 Birr billions

FY 2017-18 Financing Sources 478bn

FY 2017-18 Financing Users 478bn

New DBE Funds27 bn

New Currency (outside banks)

13 bn


DOME

STIC

FINAN

CING

NewBank Deposits

170 bn Government 165bn

New Pension Funds38 bn

SOEs130bn

New NBE Funds(Excl currency)

39 bn

New MFI Funds10bn

Pivate firms as Investees 97bn

FORE

IGN

FINAN

CING New Foreign loans84 bln

Private firms as borrowers80bn

New Foreign equity 97bln Residuals/Unallocated

6bn

FInancial Intermediation by Instrument

Domestic Debt: 194bn

Loans 120bn

Bonds: 74bn

Foreign Debt: 181bn

Loans: 177 bn

Bonds: 4 bn

Foreign Equity:

Equity: 97bn

ResidualsResiduals: 6bn



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TABLE 6B: Total Financing FLOWS: Existing Sources of Funding: FY 2017- 18

GOVERNMENT STATE ENTERPRISES PRIVATE FIRMSDescription Description Description

GOVERNMENT STATE ENTERPRISES PRIVATE FIRMS

472

Government State Enterprises Private FirmsFinancing Used in 2017-18: 165 130 177 472

Debt financing: 165 130 80 375 o/w Domestic debt 63 66 65 194 o/w External debt* 102 64 15 181Equity financing: 0 0 97 97

*For financing figures originally in foreign curreny terms, part of the increase in financing represents the increased Birr vs USD exchange rate following the Oct 2017 devaluation, and is thus over-stated by the 15 percent devaluation; the liability is of course still higher in Birr terms. For the FDI calculation, the USD flow of $3.7bn is multiplied by the year-average exchange rate to arrive at the Birr financing figure.


EQU

ITY

Dom

estic

Equ

ity

…

Exte

rnal

Equ

ity*

… 0 0 97 97

15

26

00 0 0

177

4Bonds 4 0 0

64

Bond

s

48 0

By instrument

FIN

ANCI

NG

DEBT

Dom

estic

Deb

t Loa

ns 37

74

18 65 120

Exte

rnal

Deb

t*

Loan

s

98

Existing Financing Users


OW

N F

UNDS

270 164Private firms' revenue and

retained earnings (total estimate unavailable)

Reve

nue

& re

tain

ed e

arni

ngs



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LOOKINGAHEADPolicy reforms announced since the start of 2018 confirm or suggest emerging financingopportunities in several areas. In what follows, we highlight ten previously untapped or under-exploitedareasthat—inourview—couldbecomingintothepictureinthenextfewyearsorpossiblyearlier.

Theemergingfinancingopportunities listedabovewouldbroadenthemenuoffinancingsources,instruments,andusers.Amongsources,themostnotablenewsupplyonthehorizonincludestheestablishmentofcapitalmarkets—by2020perrecentpolicydocuments—enablingprivatecompaniesto issue tradeable bonds aswell as equity.With respect to instruments, the prospects are for theemergenceofmarket-rategovernmentsecurities,consumerloans,andtradeableprivatesectorstocksandbonds.Andfinallywithrespecttousers,thereisscopeforasharpjumpinfinancingforhouseholdsandforbanks(withthelatterbecomingusers,notjustproviders,offinancing).Allthesenewemergingfinancingsources/instruments/usersarehighlightedinTable8Abelow,inboxesshadedgreen.

Table 7: Snapshot of Emerging Financing Spaces

Debt Financing Equity Financing:1 Government Bonds issued at market rates 1 SOE share issuance to domestic equity investors2 Private co bonds issued to domestic investors 2 SOE share issuance to foreign equity investors3 Private co loans contracted from foreign lenders 3 Private co share issuance to domestic investors4 Household consumer loans from local banks 4 Banks' issuance of minority shares to foreign individuals5 Banks issuing bonds to the domestic public6 Banks contracting loans from foreign lenders



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TABLE 8A: Matrix of Existing and Emerging Financing Spaces in Ethiopia Green shading: Emerging financing sources that provide net new financing

GOVERNMENT STATE ENTERPRISES PRIVATE FIRMS HOUSEHOLDS BANKSDescription Description Description Description Description

GOVERNMENT STATE ENTERPRISES PRIVATE FIRMS HOUSEHOLDS BANKS

Existing Financing Users Newer Financing Users

Individuals/Households funds for own consumption or investment

…

…

SOE loans from abroad--from multilaterals, bilaterals, private lenders

SOE bonds issued to foreign investors

[3] Private firms borrowing from abroad--from multilaterals, bilaterals, and suppliers credits

Federal/Regional Govt borrowing from NBE, CBE, and local banks.

[1] Market rate Government bonds

SOE loans from CBE and local banks.

Govt revenue collected from tax and non-tax sources, plus grants from multilateral/bilateral sources (treated as own funds for classification)

SOE capital and retained earnings available for own use and re-investment

Private firms capital and retained earnings available for own use and re-investment

…

OW

N F

UN

DS

FIN

AN

CIN

G S

OU

RC

E

[4] Household and individual bank borrowing for personal, mortgage, auto, or other purposes [CONSUMER LOANS]

[6] Bank borrowing from abroad--without any govt guarantees--from DFIs and private lenders

EQU

ITY

Dom

esti

c Eq

uity

Exte

rnal

Equ

ity

……

Private Corporates/SMEs borrowing from local Banks and MFIs.

Federal Govt borrowing from abroad--from multilateral, bilateral, commercial lenders

Federal Govt bond issued to foreign buyers (e.g. sovereign bond)

By instrument

…


Loan

sLo

ans

Bo

nd

s

DEB

T Dom

esti

c D

ebt

Exte

rnal

Deb

t

Bo

nd

s

[7] Equity injected into SOEs from the local private sector

[8] Equity inflows into upcoming SOE privatizations, either partial for the BIG-4 state enterprises or full for others

[9] Private firms raising equity from the local private sector and local institutions [STOCK MARKET]

Private firms using equity provided by foreign investors: FDI, DFI Equity, P.E., V.C., [EXISTING FDI INFLOWS--CAN BE BOOSTED FURTHER]

Banks own funds: Capital and retained earnings;

…

[10] Banks issuing up to 49% equity to foreign retail/individual shareholders

Bank borrowing from other banks, via term loans, short-term money markets

Federal/Regional Bonds and T-Bills issued to NBE,CBE, private banks, pension funds

SOE bonds issued to CBE, private banks, pension funds, others

[2] Private Corporate bonds issued to the local public [PRIVATE BOND MARKET]

[5] Bank bond issues to the local public and local institutions for long-term funding



15

*Note:Additionaldomesticequityissuedbybanksexcludedfromestimationasitisnottreatedasa"new"financingform.GivenBirr40bnofprivatebankscapitalendJune2018,andassuming25percentannual increment(perrecenttrends),annualcapital increasesfromdomesticinvestorswillbearoundBirr10bnperyear **:Figuresinthistablerepresentflowdata(newfinancing)andare2017-18figuresforexistingfinancesplusestimated2-3yeartotalsforthenew/emergingfinancingsources.

Green shading: Emerging spacesTABLE 8B: Total Financing FLOWS: Existing Sources (FY18), plus Emerging Financing Sources and Users *


Description Description Description Description Description


15

70

472 560

Government State Enterprises Private Firms Households Banks

Total Financing Potential: 174 491 268 21 78 1032Existing sources: 165 130 177 0 0 472

Emerging sources: 9 361 91 21 78 560

0 325

0 49

97 97 37651

36 13 **

87

Bo

nd

s 4 0 0 4

64 17 177

0

279

18 65 21 0 120

48 8 10 74

By instrument

21

FIN

AN

CIN

G

DE

BT

Do

me

stic

De

bt

Lo

an

s

37

Bonds 26

Ex

tern

al

De

bt

Lo

an

s

98

EQ

UIT

Y

Do

me

stic

Eq

uit

y

… 0

Ex

tern

al

Eq

uit

y

…

Existing Financing Users Newer Financing Users


OW

N F

UN

DS

270 164 Private firms revenue and retained earningsHouseholds own revenue and

retained earningsBanks own revenue and retained

earnings



16

IntheEthiopiancontext,themagnitudesinvolvedfromtappingintoemergingfinancingspacescanbe approximated based on the current starting conditions and certain assumptions; our roughestimatessuggestextrafinancingontheorderofBirr550-600bnoverthespaceofthreeyears.Thebasis for these illustrative estimates,which are onlymeant to offer broadorders ofmagnitude, issummarizedbelowalongside someof theutilized assumptions. It isworthnoting that, among theitemizedareas,notall reflectcurrentpolicycommitmentsandnotallmayberealized. Indeed, thefinancingopportunitieslistedreflectamixof:(1)financingsourcesthatarealreadyinplacebutnotextensivelyutilized(privatefirmsgettingloans/supplierscreditsfromabroad);(2)areaswherepolicycommittmentsarealreadyinplace(market-basedgovernmentsecurities,SOEsharesalestoforeignanddomesticequityinvestors);(3)areaswherethebroadpolicydirectionsuggestsastronglikelihoodofimplementationinthecomingyears(privatecompaniesandbanksissuingbondsandshares);andfinally(4)morespeculativejudgementsthatwethinkmaycomeintothepicturegivenmodestfurtherreforms(allowingprivatebankstoborrowfromabroadsubjecttoprudentiallimits,and/orenablingexistingEthiopianbankstoacceptsomeforeignequityinflowsbutonlyasminorityshareholders—asisthecasefortheBig-4SOEprivatizations—andonlyforindividual/retailinvestors).



17

TABLE 9: Ethiopia's Emerging Financing Sources, Instruments, and Users--An Illustrative EstimationLow est High est Mid-point

1 8.3 9.9 9.1 Govt Deficits at 2.5% for FY 2019, 2020, 2021 2.5% Govt Deficits at 3.0% for FY 2019, 2020, 2021 3.0% Share of deficit financing from market securities 10.0% Share of deficit financing from domestic sources 50.0% Nominal GDP avg over FY 2019, 2020, 2021 3,303

2 4.0 12.0 8.0 No of cos issuing bonds over three years, low-end 20.0 No of cos issuing bonds over three years, high-end 30.0 Average size of company bond issue, Birr bn, low-end 0.2 Average size of company bond issue, Birr bn, high-end 0.4

3 $ 1.0 $ 4.0 $ 2.5 No of cos with foreign loans/suppliers credits, low-end 50.0 No of cos with foreign loans/suppliers credits, high-end 100.0 Avg size of for loan/suppliers credit, USD mns, low-end 20.0 Avg size of for loan/suppliers credit, USD mns, high-end 40.0

4 15.0 30.0 22.5 Private banks' total loans, Birr bns, FY 2019-21 avg 300 Share of loans to consumers, low-end 5.0% Share of loans to consumers, high-end 10.0%

5 6.8 13.5 10.1 Banks issuing local bonds, FY 2019-2021 8 Average capital base in FY 2019-21, Birr bns 4.2 Bonds as percent of capital, low-end, Birr bns 20% Bonds as percent of capital, high-end, Birr bns 40%

6 $ 0.5 $ 0.7 $ 0.6 Banks taking on foreign loans, FY 2019-2021 8 Average capital during FY 2019-21, Birr bns 4.2 Foreign loan as percent of capital, low-end 40% Foreign loan as percent of capital, high-end 60%

7 28.8 43.2 36.0 P/E ratio assumed, low-end 8.0 P/E ratio assumed, low-end 12.0 Assumed company shares put up for privatization 49% Assumed share of equity sales to domestic investors, % 10%

8 $ 9.3 $ 13.9 $ 11.6 P/E ratio assumed, low-end 8.0 P/E ratio assumed, low-end 12.0 Assumed company shares put up for privatization 49% Assumed share of equity sales to foreign investors, % 90%

9 8.0 18.0 13.0 No of cos with share issues in three years, low-end 20.0 No of cos with share issues in three years, high-end 30.0 Average size of share issue, low-end 0.4 Average size of share issue, high-end 0.6

10 $ 1.3 $ 2.3 $ 1.8 Private Banks with minority foreign equity 8 Average val pre-money, FY 2019-21, Birr bns 8.4 Foreign equity as percent of capital, low-end 35% Foreign equity as percent of capital, low-end 49%

GRAND TOTAL--Birr funding sources: 70.8 126.6 98.7 GRAND TOTAL--USD funding sources: 12.0$ 20.9$ 16.5$

IN BIRR TERMS--grand total 407.7 712.4 560.1 o/w birr sources 70.8 126.6 98.7

o/w fx sources 337.0 585.8 461.4

IN USD TERMS--grand total 14.6$ 25.4$ 20.0$ o/w birr sources 2.5$ 4.5$ 3.5$

o/w fx sources 12.0$ 20.9$ 16.5$

Market-based government securities

Local banks taking on foreign loans (USD bns)

Local banks issuing local bonds (Birr bns)

Household borrowing from banks (Birr bns)

Private company loans and suppliers credits from abroad (USD bns)

Private company bonds to domestic investors

SOE shares issued to foreign equity investors (10% of 49-pct stake)

SOE shares issued to foreign equity investors (90% of 49-pct stake)

Private cos issuing tradeable shares

Banks taking minority foreign equity



18

Theillustrativeestimatesabovesuggestthatforeignfinancingsourcesaremostlikelytoprovidethebulkoftheincrementalfinancinggains(Table9).Inparticular,threeareasofferthegreatestpotentialinflowsare:(a)thealreadyannouncedprivatizationofthelargestate-ownedenterprises(thoughthisisaone-offexercise);(b)expandingthescopeforprivatecompaniestoborrowfromabroad(withoutgovernment guarantees); and (c) thepossible allowanceof foreignminority equity shareholders inEthiopian banks [Table 8B]. Based on approximate figures, the planned privatizations alonewouldgeneratearoundhalfoftheincrementalgains—indicatingthattheearlyfocushasbeenappropriatetoaddress financing constraints. In terms of foreign currency generation, the approximate amountsinvolvedcouldbeashighas$17billionoverthespaceofthreeyears.Finally,onBirrfinancingsources,it’sworthnotingthatsomeoftheareasmaynotnecessarilyprovideanetfinancingboostastheymaylargelyinvolveshiftsinexistingfundingsources(e.g.,domesticsaversmovingfrombankdepositsintodomesticbondsorequities).However,asthedominantcurrentusersgetaccesstonewersources(e.gSOEs/corporatesshiftingtobonds/stocks),traditionalfunderssuchasbankscanallocatemoreoftheirexisting funds tobothnewerusers (consumer/household loans)and todifferent types of financing(longer-termproducts).Capitalizingoneachoftheaboveemergingfundingareaswill,ofcourse,requireavariedsetofpolicy,regulatory,legal,andtechnicalpre-requisitesandpreparations.Whilebeyondthescopeofthisnote,theseareindispensabletoseizethefinancingopportunitiesathandandwillinvolveintroductionorrevision of laws, regulations, and institutional arrangements across the various financing domains.Thus,earlypolicyattentionandtechnicalsupporttoputinplacethisrequisiteecosystemwouldhelpunlockthefullscopeofeconomicgainstoberealizedfromopeningupnewfinancingopportunities.Insum,tappingintotheemergingfinancingspacespromisesasurgeinextrafundingofasmuchas$17billioninforeigncurrencytermsandanadditionalBirr100billionoverthenextthreeyears—collectively equivalent to around 25 percent of current GDP. This estimate is certainly severalmultiples of some conventional financing sources (it is four times the annual incremental depositsgeneratedbythebankingsystemasawhole),butitisnotnecessarilythatlargerelativetothesizeoftheeconomygiventheassumedtimeframe(threeyears)andconsideringtheone-offnatureofsomeofthegains(i.e.,privatization).Still,thevalueofexploitingtheseemergingsourcesremainsparticularlysignificantfor: (1)thesubstantial foreigncurrencyresourcesbeinggeneratedtocovercriticalnear-termneeds;and(2)thegradualfoundationsbeingputinplacetosecurebroad-basedfinancingthatisdiversifiedinitssources,byinstruments,andend-users.



19

APPENDIXTABLES

Appendix1:BreakdownofFinancingfromDepositsDepositsbyBankDepositsbySaversBirr730bnBirr730bn

BOA 25.3bn

UB23bn

NIB 21bn

WB 20.4bn

OIB 19.8bn

LIB 11.6bn

Berhan 10.7bnZB 9.9bn

Bunna 9.8bn

Abay 9.5bn

Enat 4.8bn

Addis 2.9bn

DGB 2.1bn

DB 36bn

AIB 43bn

CBE 452bn

Private Sector Deposits 545 bn

Government Deposits 60bn

Foreign Currency Deposits16bn

Non Bank Financial Agency Deposits

11bn

Commercial Bank Deposits

6bn



20

Appendix2:DomesticFinancingExpansionsince2010

Source:NBE

Source:NBE

681970

1,2891,724

2,2082,693

3,301

4,257

4,757

- 500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

2010 2011 2012 2013 2014 2015 2016 2017 2018

TotalNumberofBranches

4.5 5.67.1

10.213.0

16.520.3

26.7

33.5

-

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

2010 2011 2012 2013 2014 2015 2016 2017 2018

TotalNumberofDepositors(mns)



21

Appendix3:BreakdownofFinancingfromExternalDebt

Source:MOFEC

Source:MOFEC

6.16 6.49 7.72 9.1010.49

4.64 6.007.47

8.21 8.613.286.19

6.156.11

6.81

-

5.00

10.00

15.00

20.00

25.00

30.00

2014 2015 2016 2017 2018

PublicSectorExternalDebtbySources(bnUSD)

Multilaterals Bilaterals Private

8.42 10.02 11.5812.98 14.74

2.654.68

6.106.94

7.60

2.99

3.973.67

3.513.58

-

5.00

10.00

15.00

20.00

25.00

30.00

2014 2015 2016 2017 2018

PublicSectorDebtbyBorrower(bnUSD)

Government SOEs Private

$3.23

$5.95

$3.52$2.95

$3.48

$-

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

2014 2015 2016 2017 2018

AnnualPublicSecotorBorrowing(bns)

$0.67

$0.99$1.14

$1.29

$1.53

$- $0.20

$0.40

$0.60

$0.80

$1.00

$1.20

$1.40

$1.60

$1.80

2014 2015 2016 2017 2018

AnnualPublicSectorExternalDebtRepayment(bns)



22

Appendix4:BreakdownofFinancingfromForeignEquity

Source:NBE,UNCTAD,Estimatefor2018FDIstock

Source:EIC

1.21.5

2.2

3.3

4.2

3.7

-

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

2013 2014 2015 2016 2017 2018

FDIInflows(BlnUSD)

$6.5$8.3

$10.9

$14.9

$18.5

$21.0

$-

$5.0

$10.0

$15.0

$20.0

$25.0

2013 2014 2015 2016 2017 2018

FDIStock(BnUSD)

55163

407

852

468

1,454

-

200

400

600

800

1,000

1,200

1,400

1,600

2013 2014 2015 2016 2017 2018

FDIRegistrationCount

1.5

5.64.1

6.78.4

20.7

0

5

10

15

20

25

2013 2014 2015 2016 2017 2018

FDIRegistrationValue(bnbirr)

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