27 August 2014 Business News Briefs

In search for power, Ethiopia turns to growing sugar


Author: E.G. Woldegebriel

An irrigation system showers a sugarcane field with water at the Kuraz sugar project in southern Ethiopia

ADDIS ABABA, Ethiopia (Thomson Reuters Foundation) – Eating and drinking in Ethiopia involves a lot of sugar, from the quintessentially Ethiopian buna (coffee) ceremony to the fare in pastry shops. But it’s expensive to import.

Now the government has embarked on an ambitious project to grow more sugar to meet that demand – but also to boost electricity production and to create sugar-based ethanol that could help reduce car emissions and cut down on fossil fuel imports.

Ethiopia currently produces about 300,000 tonnes of sugar a year from three factories, at Wonchi, Metehera and Finchaa. The factories also generate 62 megawatts (MW) of electricity, half of which is used by the sugar plants themselves, with the rest sent to the national electric grid.

Gossaye Mengiste, an official at the Ministry of Water, Irrigation and Energy, says Ethiopia has the potential to produce 600 MW of energy from sugar when 13 additional factories now being built start production – a considerable boost to the country’s national electricity output.


Altogether, Ethiopia aims to generate up to 8,000 MW of additional energy by the end of the next year, more than quadrupling its current 2,200 MW. Most of the energy will come from hydropower and wind – but waste energy, geothermal and co-generation from sugar plants are all part of the strategy.

The government, facing a shortage of at least 200,000 tonnes of sugar a year, as well as persistent electricity cuts and rising pollution from its busy streets, sees growth in sugar as a cost-effective, environmentally friendly answer.

Ethiopia is working to build a climate-resilient green economy and aiming for a net carbon output of zero by 2025. Reducing emissions from cars, a big source of greenhouse gases, is a key part of that, Mengiste said.

Another economic goal is to become a middle-income country by 2025, which depends on the government keeping the economy growing at what it claims has been an annual growth rate of 10 percent a year over the past decade.

The government has focused on increasing use of ethanol, a byproduct of sugar, as a source of electricity because it’s relatively cheap and doesn’t require a dedicated factory, so it can act as a supplementary energy source when needed.


Sugar plantations, however, need large tracts of lands. The question of land availability in lowland areas – most of which are occupied by pastoralists who occupy 60 percent of the country’s land but account for only 11 percent of its population – may be a difficult one.

Zemdekun Tekle, corporate communications director at the Ethiopian Sugar Corporation, the state entity that handles all sugar projects, says the current projects benefit both local people and the country as a whole.

Planting sugar has created employment for local people and pushed pastoralists into settling, he said. He pointed to the Omo Valley where local people produce maize and have been provided with health clinics, schools and saw mills.

In the area, “graduates are learning practical skills with the sugar industry, becoming a skilled workforce and eventually becoming innovators themselves,” Tekle said.

Another benefit from the sugar project is that it produces high-quality cattle feed as a byproduct, helping the country’s large livestock sector which had previously been hampered by lack of good cattle feed, the Sugar Corporation noted.

But critics aren’t convinced of the merits of the scheme, saying efforts to expand sugar production are based on a condescending plan drawn up mainly by people living in highland areas but affecting the lowland population.

Groups like Survival International and other minority rights bodies have urged potential donors to shy away from such projects, which they allege destroy pastoralist populations. Tekle admitted that such lobbying has reduced the range of Ethiopia’s funding partners.


But emerging economies such as India and China have already opened their wallets, he said, noting that the visit of Chinese Premier Li  Keqianq in May coincided with a $500 million loan funding agreement for one such project – the Welkayit sugar factory.

In highland Addis Ababa, a bustling metropolis of more than three million people, however, business people and residents alike are more concerned with finding sugar for their daily needs at an affordable price.

One such person is Tsehay Gebremeskel, who has owned and run a small café in the capital for more than 20 years.

“I use sugar for the tea, coffee, milk, pastry and juices I serve to my customers, but I’m having difficulty finding sugar regularly from the government shop for a price of 1550 birr ($78) per quintal,” she said. The cost of sugar is eating into her profits, from which she pays her employees and bills for the café and covers her home expenses.

The government plans to meet the sugar shortage by opening seven new sugar-processing plants by the end of next year, which will raise the country’s production capacity from 300,000 tonnes to 1.2 million tonnes a year. The plants will require 348,000 hectares of land, the government says.

The government estimates national sugar demand at about 650,000 tonnes a year, with current shortfalls made up by imports from Thailand and Dubai. But with added sugar-growing capacity in place by 2015, Ethiopia aims to export some 550,000 tonnes, giving it earnings projected at $300 million by the end of next year.

E.G. Woldegebriel is a journalist based in Addis Ababa with an interest in environmental issues.



Netafim in Ethiopian talks to sell $200m irrigation systems


By Irit Avissar and Ron Stein

Ethiopian farmers

A consortium of Israel financial institutions is providing financing for an Ethiopian government company.

Drip irrigation technology company Netafim Ltd. is in advanced negotiations for a $190-200 million deal to supply pumping and underground drip irrigation systems for sugar cane to an Ethiopian government company. A consortium of Israel financial institutions, headed by Bank Hapoalim (TASE: POLI), is providing financing for the Ethiopian company.

The project is complex, and its terms, including the financing question, have not yet been finally closed. Netafim, managed by CEO Ran Meidan, is carrying out the work in Ethiopia in cooperation with Global Africa Industries, owned and managed by Itai Terner. In addition to the complex deal itself, one of the interesting things about it concerns the question of financing. The bank’s customer is Netafim, but the party receiving credit from the bank is an Ethiopian company controlled by the Ethiopian local government, with the money being paid to Netafim as payment for the project. The finance transaction is a complicated scheme called buyer credit, in which the bank is actually financing the company receiving services from its customer. Credit granted to an Ethiopian company, however, is considered high-risk credit, because it involves a company operating in a country defined as an emerging market, and which does not have large foreign currency reserves. This loan is therefore designed to be secured through a credit insurance company. The parties have apparently not yet settled the question of the insurance, and it has not yet been determined whether the party providing it will be the government credit insurance company or a foreign credit insurance company.

The advantage of the deal for Bank Hapoalim is that the risk is being transferred to the credit insurance company (these companies have high debt and financial strength ratings), which means that Bank Hapoalim’s risk is determined by the credit risk of the insurance company insuring the loan, which is low, rather than by the Ethiopian company’s risk.

Quite a big deal

The negotiations for putting together a financing package have reached an advanced stage, although they have not yet been finally approved. The deal is a rather large one, and the bank is therefore expected to recruit other financial institutions to take part in it, apparently mainly foreign institutions specializing in this type of transactions. Bank Hapoalim is also providing credit to Netafim directly through a consortium that includes Clal Insurance Enterprises Holdings Ltd. (TASE: CLIS), Harel Insurance Investments and Financial Services Ltd. (TASE: HARL), Amitim (the older pension funds for which an arrangement has been made), Mizrahi Tefahot Bank (TASE:MZTF), Israel Discount Bank (TASE: DSCT), Union Bank of Israel (TASE: UNON), and HSBC. Some of these institutions may also participate in financing this contract.

Netafim, controlled by the Permira private equity fund, uses drip irrigation that saves water and reduces erosion and soil exhaustion. Netafim exports $800 million annually. The company has 16 plants in 11 countries, and 13 of its plants are outside of Israel. The company has 4,000 employees.




Dr. Tedros holds talks with Chairman of Ezdan Holding Group


Foreign Affairs Minister Dr. Tedros Adhanom held talks on Tuesday (August 26) with Dr. Khalid bin Thani Al Thani, Chairman of Ezdan Holding Group of Qatar.

He welcomed the choice of Ethiopia as an epicenter of the company’s investment and expressed the hope that the Ezdan Holding Group’s investment would create a new era for the development of Ethio-Qatar bilateral ties.

Dr. Tedros, noting that Ethiopia was a champion of macro-economic stability and socio-economic development, mentioned the country’s remarkable economic performance registered over the last ten years with an average real GDP growth of 10.9%.

This, he said, was the result of the right-mix of development policies and strategies and tremendous public investment in infrastructure, agriculture and services.

He said major international rating firms had recently appreciated Ethiopia’s impressive growth trajectory, giving a rating of “B” and “B+”.

He detailed the priority areas of investment, including manufacturing, building and the development of industrial zones, renewable energy and health.

All these, he said, would surely bring win-win outcomes and tangible benefits to Ethiopia and the Ezdan Holding Group.

He also mentioned that Ethiopia had signed agreements on investment promotion and protection and avoidance of double taxation with Qatar, and hoped these agreements would provide additional impetus to the Ezdan Group’s engagement in selected areas of investment.

Dr. Tedros added that Ethiopia had also become an important force for regional peace, security and stability, and emphasized its valued links with neighboring countries as mutually cooperative partners to consolidate an integrated, stable and prosperous region.

Dr. Khalid bin Thani Al Thani said Ethiopia’s present economic takeoff and future economic and political trajectory were the major driving forces to encouragement in investment and add value in the country’s national renaissance in the areas of health, real-estate development and hotels in which his company was ready to invest.

Dr. Tedros said the Ministry was a significant point through which to engage in Ethiopia’s investment and business opportunities, and he recommended the value of participating in the Government’s efforts to make Ethiopia a nucleus of medical tourism in Africa.

The Qatar delegation also met with President Dr. Mulatu who highlighted the government’s readiness to offer all possible support to encourage foreign investment in Ethiopia through available facilities and incentives and policies that protect investments in the country.

Sheikh Khalid said building long-lasting strategic relationships between the private sectors of the two countries should benefit the efforts and attempts to open new markets and promote new joint ventures locally and internationally, including attractive strategic projects for local and foreign investments.

He said he observed a clear interest from the Ethiopian side in the Qatari investment and serious attempts to provide suitable and attractive environment for investments that could play an influential role in moving the wheel of development in the country and finding new job opportunities.


First Addis Abeba tram rolls out



ETHIOPIA: The first of 41 trams being built for the two-line network under construction in Addis Abeba was unveiled at CNR Changchun’s plant in China on August 26.

The trams were ordered in March 2014 and are scheduled to be delivered by January, being shipped via Tianjin and Djibouti with a journey time of about 50 days.

CNR said the arrival of the first Chinese-built trams in Africa would act as demonstrator for Chinese technology, opening the door to other African markets including proposed light rail lines in Kenya, Congo, Zimbabwe, Egypt and Nigeria.

The three-section 70% low-floor cars have an entrance height of 350 mm and a steel and aluminium body designed to combine strength with lightness. They are designed to operate in pairs at speeds up to 70 km/h.

To cope with the effects of strong sunlight at altitudes of 2 400 m, the trams have tinted windows designed to filter out 90% of the ultraviolet rays, and the rubber components and cables are specified to avoid premature ageing. The roof is designed for rapid drainage to cope with sudden heavy downpours, with roof-mounted components in weather-sealed housings. Reflecting typical year-round temperatures between 6°C and 28°C, the trams will have opening windows to save the energy and maintenance costs of air-conditioning.

Two lines are being built by China Railway Eryuan Engineering Group for completion by January 2015. One will run 16·9 km north-south from Menelik Square to Kaliti, and the other running 17·4 km east-west from Ayat to Tor Hailoch. The routes will share tracks for a 2·7 km section between Lideta and Meskel Square. Export-Import Bank of China is providing loans to cover 85% of the cost of the project.

As well as supplying the trams, CNR is to provide staff training, with 50 Ethiopian drivers and maintenance personnel to begin courses during September.


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