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Ethiopia tells investors to consider potential war with Eritrea

Eritrean MiG-29UB and Mi-35

Ethiopia issues unfamiliar investor warning over war and famine

By Javier Blas,

Every country tapping the global sovereign bond market details the dangers investors face in its prospectus, often in a boilerplate section enumerating possible problems – such as fiscal deficits or taxation issues – that is largely ignored.

But the document sent by Ethiopia to international investors ahead of its foray into the global sovereign bond market is somewhat different. Far from a boilerplate, it includes a list of unfamiliar hazards, such as famine, political tension and war.

The document, seen by the Financial Times, is a sobering reminder of the risk of investing in one of Africa’s less developed nations. With gross domestic product per capita at less than $550 per year, Ethiopia is the poorest country yet to issue global bonds.

In the 108-page prospectus, issued ahead of its expected $1bn bond, Ethiopia tells investors they need to consider the potential resumption of the Eritrea-Ethiopia war, which ended in 2000, although it “does not anticipate future conflict”.

There is also the risk of famine, the “high level of poverty” and strained public finances, as well as the possible, if unlikely, blocking of the country’s only access to the sea through neighbouring Djibouti should relations between the two countries sour.

Addis Ababa, Ethiopia’s capital, also warns that it is ranked close to the bottom of the UN Human Development Index – 173rd out of 187 nations – and cautions about the possibility of political turmoil. “The next general election is due to take place in May 2015 and while the government expects these elections to be peaceful, there is a risk that political tension and unrest . . . may occur.”

But the long list of risks is not deterring investors, as ultra-low interest rates in the US, the UK, eurozone and Japan push sovereign wealth funds and pension funds into riskier countries in search of higher-yielding bonds.

Instead, some investors are focusing on the danger of a currency crisis. Addis Ababa has devalued its currency, the birr, twice over the past five years – by 23.7 per cent in 2010 and 16.5 per cent in 2011 – in an effort to win export competitiveness. Since then, the Ethiopian central bank has managed to slow the currency’s depreciation by intervening regularly in the market.

Addis Ababa has now told potential investors that “it may not be possible for the National Bank of Ethiopia to manage the exchange rate as effectively in the future as it has in the past” because of reduced hard currency reserves.

The country has reserves to cover only 2.2 months’ worth of imports – almost half the 4.3 months it had in 2010-11. “Failure to manage a steadily depreciating exchange rate may adversely affect Ethiopia’s economy . . . [and its] ability to perform obligations under” the bonds, it says.

The prospectus also reveals for the first time details of Ethiopia’s heavy dependence on Chinese loans to finance its infrastructure investment. Credit lines from China and Chinese entities accounted for 42 per cent of all external loan disbursements in 2013-14, and for 69 per cent in 2012-13.

“China has emerged as a key development partner,” the prospectus says, “often providing sizeable financing tied to infrastructure projects undertaken by Chinese firms.” Among those, telecoms groups ZTE and Huawei and a company the prospectus names as China Electric Power have lent Ethiopia more than $2bn over the past few years.

Lazard, the investment bank advising Addis Ababa on financial matters, declined to comment. The Ethiopian government did not respond to a request for comment. Investors said the bond was expected to price later this week at between 6 and 7 per cent.

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Ethiopia tells investors to consider potential war with Eritrea Reviewed by Admin on 12:14 AM Rating: 5


  1. Really genuine to investors, "Ewnetun tenagro bemeshebet mader" said our wise fathers

  2. who will benefit from disaster, why War Mr weyani?We have been at war for 100 years is good for Ethiopian people? we had border conflict, then we went to court and the court gave its verdict, what do you want now. It is very sad, to play with fire? Ethiopian people love peace, they deserve peace, why are you biting drum for war,sham.Ethiopia is the oldest civilized country, why always on fire.
    The only way for us Eritrean people is defend and slap them back like before. Ethiopia leaders will never ever change their stance against legendry Eritrean people.mesafnt...haileslase....mengistu...meles...hailemariam/group weyani/
    the same...Eritrean eaters.

  3. But Ethiopians are generally war mongers. What is true. What is ewnet? They never told the truth. They are war mongering. They are saying it because there is no where a hiding place for them woyanes now. Economic growth 10%, population wealth middle class country. Ethiopia is ahead in economic development ...; all this were true at one stage. Now all what they have been telling is false and telling now the truth. Then a few months time they will reverse it. Where does it end?? Lie, lie, then lie . because3, false+ false= false. Now no way out . probably lie+lie+lie+lie+ .. lie+ truth= truth or false . There is no consistency. No Ethiopia is scaring investors who rushed to land grab in Ethiopia . What a wusha, Kolb , shermuta politics. There is no more shame than this. But woyanes and their dummy supporters are shameless.

  4. Ayda, what they spoke about is the potential RISK for investment, not about what you are thinking of Shabo crap, read it again and again and again.

  5. They didn't say anything to start war with you guys, they simply put the reality i.e potential Risk of War. Is it not Shabos drum up every time about taking Badme by force?

  6. All the article is trying to communicate is Ethiopia is poor. We are but Eritreans are even worse. They go to the poor country Ethiopia to beg and seek refuge. They are so poor now a days have started trading human organ for a bread.

    Ethiopia at least has the governmental and institutional structure to to issue global bonds. Quarter a century after "freedom", Eritrea doesn't have no parliament, no fiscal plan and budget, no university (just bad mouthing Ethiopia).

  7. Lair! Shaebia says Ethiopia should abandon Eritrean territories including Badme. It never talks about taking it by force thought it is justified to do so. Your government is the one that has continuously threatened to use force against Eritrea. No one can change the decision of the EEBC. The party that is not respecting that decision is actually conducting war!

  8. Excuse me? Under which rock have you been hiding yourself?

  9. I am not under but rather on the rock under which mass grave of Eritreans is found in Sinai desert.

    And sometime when I am on top of the rock I can see slums in North Ethiopia where Sidetegnatats from Singapoooor live in.

  10. No EEBC, no Algiers agreement , you killed it decade ago

  11. You can talk all the shit you like., but shaebia has been vetted over and over.

    Damn!!!! what happened to all that land sold to saudi's and indians? wasn't that suppose to solve your woes? Now selling bonds lol. Sounds like they are grasping at every straw.
    You might like your country selling its land for pennies on the dollar.., lush lands that can support many crops at that. But Eritreans won't sell there land. Now for all the wealth in the world! That is why Shaebia will always be loved by Eritrea. We only want what is ours. We don't even want a fly from another nation.

    Huffing and puffing your chest for 800 meters in badme.., Hey look at me white people!! I'm on your side. While selling land as big as Switzerland for pennies. Shit i would like peace just so we can participate in buying that land lol. But i know you bastards would love to sell to arabs and Saudis before you let your neighbors.

    Point im making is Ethiopia IS FOR SALE., Eritrea IS NOT FOR SALE. That is the glaring difference!.


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