AFD in Ethiopia

Agence Française de Développement

ETHIOPIA

View of Addis Ababa © Sylvain Kockmann, AFD

AGENCE FRANÇAISE DE DÉVELOPPEMENT

ETHIOPIA

Ethiopia With a population of 94 million inhabitants (2013) spread over a territory of 1.1 million km2, Ethiopia is the second most populous country in Sub-Saharan Africa. It experienced a period of strong growth between 2004 and 2014.

The average annual growth rate stood at 10.4%, placing the country on a convergence path with the average recorded by the group of Least Developed Countries (LDCs) and Sub-Saharan African countries. In addition, although the country continues to be at quite a low level in the Human Development Index (HDI), (173rd position out of 186 in 2014), with a per capita income of USD 550 in 2013, over the past decade, all the parameters that make up this index have seen a more marked and faster improvement than in most of the other Least Developed Countries. The poverty rate fell from 44.2% in 2000 to almost 29% in 2014, while income disparities remain low, despite a slight increase. This performance is the result of the proactive policy implemented by the Government, in particular via the Growth and Transformation Plan (GTP), whose orientations aim to modernize agriculture, develop industry, promote and diversify exports, extend and upgrade infrastructures, and support social sectors.

The goal of the Ethiopian Government is to achieve green, strong and inclusive growth so as Ethiopia attains the status of middle-income country by 2025.

Project to support family farming, terraced farming, Southern Nations, Nationalities and People’s Region © Sylvain Kockmann, AFD

AFD Group’s commitment in Ethiopia Agence Française de Développement (AFD) has been authorized to operate in Ethiopia since September 1993. Projects are identified and supervised by AFD’s Addis Ababa regional agency, which also covers Sudan, Southern Sudan, Somalia (excluding Somaliland) and Eritrea.

Up until 2010, AFD’s operations to support Ethiopia were only done through grants. The analyses of Ethiopia’s debt sustainability conducted by the International Monetary Fund (IMF) and World Bank since 2010 indicate that the country has a low risk of debt distress, which allows AFD to operate through sovereign loans. Consequently, in 2011, AFD allocated the first two sovereign loans to Ethiopia for a total of EUR 70m. From 2001 to the end of 2014, total commitments stand at almost EUR 353m and disbursements at some EUR 135.6m.

Commitments (%) by sector 2010‑2015 Water and sanitation

0.69

Other

7.87 26.42 Urban development

65.02

Transport and energy

AGENCE FRANÇAISE DE DÉVELOPPEMENT

ETHIOPIA

AFD’s strategy in Ethiopia AFD’s strategy in Ethiopia is defined in line with the priorities of the Growth and Transformation Plan and in accordance with the Partnership Framework Document signed by the Ethiopian and French Governments, which identifies the main areas of cooperation. In this context, AFD Group’s strategy currently focuses on the following sectors:

Urban development,

Energy,

Support for investments

including water and sanitation;

with a focus on the subsectors of generation and transmission;

and capacity building in the productive sector.

A wide range of financial tools….

In addition to the subsidized loans to the Ethiopian State, AFD also allocates direct loans without a government guarantee, subject to certain conditions, to solvent companies in the public market sector, for example to Ethiopian Airlines. AFD also intends to increase its ARIZ (Investment Risk Insurance in the Priority Solidarity Zone) guarantee activities in Ethiopia in order to finance small and medium-sized enterprises, in partnership with the local banking sector.

Finally, PROPARCO, AFD’s private sector financing arm, may participate in financing the private sector, particularly for exporting companies, via loans, equity investments and guarantees in foreign currency.

The emphasis placed on developing export and import substitution activities by the Ethiopian authorities opens up promising prospects for this type of operation.

…which allow AFD to address a wide diversity of actors AFD provides its support to a wide variety of partners: State and parastatal Ethiopian institutions (Ethiopian Airlines, Ethiopian Electric Power…), local authorities (Addis Ababa Municipality and secondary cities), private financial institutions (Dashen Bank…), as well as to French non-governmental organizations.

Promoting harmonious urban development Ethiopia has a rapid urbanization rate, which poses a number of challenges for the future. While the urban population only accounts for 19.5% of the total population, it increases at a rate close to 5% a year (against 2.6% at national level), i.e. one of the fastest rates in Sub-Saharan Africa (2014). AFD supports the Ethiopian Government’s sustainable urban development policy, which is a major issue for its growth strategy.

Increasing support to the Addis Ababa Municipality for key sectors AFD has a strong partnership with the Addis Ababa Municipality. It supports its environmental and mobility policy, for example, for solid waste management in Addis Ababa by financing the closure and rehabilitation of the current landfill, which is saturated and embedded in the city. It is also supporting the construction of waste storage facilities, via a concessional loan, as well as the restructuring of the industry from primary collection to landfilling.

View of Addis Ababa, Kazanchis neighborhood © Sylvain Kockmann, AFD

AFD also supports the Addis Ababa Municipality’s integrated public transport policy and allocated EUR 50m of concessional financing for this purpose in 2014 for a project to create a Bus Rapid Transit (BRT) line.

AFD is also preparing a detailed feasibility study, in cofinancing with the State-owned Addis Ababa Abattoirs Enterprise (AAAE), to build new facilities and provide technical and financial management support to this entity. This project is at the intersection of urban redevelopment and support for economic development (meat industry).

AGENCE FRANÇAISE DE DÉVELOPPEMENT

ETHIOPIA

Finally, in the water sector, in cofinancing with the World Bank, AFD has participated in the extension of the Addis Ababa drinking water treatment plant (Legedadi area) and has supported a program to assist the capital’s water authority in reducing technical and commercial losses.

Access to drinking water in urban areas Building on its long-standing experience with the Addis Ababa water authority, AFD is currently financing a program with a soft loan and

a grant to develop drinking water and sanitation services in the country’s secondary cities.

The resources are provided via a revolving financing mechanism housed at the Ministry of Water, Irrigation and Energy. The European Investment Bank and Italian Cooperation are cofinancing this approach, which aims to be as harmonized as possible in order to improve effectiveness and bring about stronger impacts, in support of the sectoral policy.

Energy: An engine of growth Ethiopia has the second largest hydropower potential in Africa with over 50 GW. Since the early 2000s, it has been implementing a very ambitious investment program for power generation.

In just a few years, the generation capacity has risen from 814 MW in 2005 to 2,167 MW in mid-2013. It is expected to see a fourfold increase by 2018.

It should be noted that Ethiopia’s objectives are not only geared towards meeting domestic needs. Indeed, the country intends to export a substantial proportion of the low-cost electricity it will produce and thereby contribute to supplying neighboring countries.

Ashegoda wind farm, Mekelé, Northern Ethiopia © Ranie Rambaud, AFD

Strategy to diversify renewable energy generation sources

Transmission and distribution grid needs to be reinforced

Public policies promote a diversification of renewable energy generation sources in order to mitigate the risks related to a rainfall deficit. In this context, AFD has cofinanced a 120 MW wind farm in Mekelé (Tigray region in Northern Ethiopia) for the national electricity operator EEP. It has also committed, in partnership with the European Union, to finance geothermal development in the Tendaho area (Afar region in the East of the country).

The number of registered clients doubled between mid-2005 and mid-2010. It is estimated that approximately 15% of the national population has access to electricity. The national development plan provides for a significant increase in the number of clients. It plans to increase the coverage rate from 41% to 75%, which requires doubling the length of the transmission lines.

AFD has therefore opted to finance 61 km of high-voltage lines and 5 substations.

AGENCE FRANÇAISE DE DÉVELOPPEMENT

ETHIOPIA

Supporting financial and productive sectors Promoting access to credit for small and medium-sized enterprises: ARIZ Access to credit, which promotes a rapid and harmonious growth for small and medium-sized enterprises (SMEs), is not, however, always easy due to the low level of guarantees that SMEs are likely to provide and, more specifically in Ethiopia, the Central Bank’s desire to control the lending activity to the private sector.

AFD has a guarantee tool called ARIZ for this purpose. It covers credit risk up to 50% (loans to SMEs) or 75% (loans to microfinance institutions). This mechanism thereby supports partner banks by sharing the risk of the loan.

Guaranteeing the bank loans of medium-sized enterprises. ARIZ has, for example, allowed two fast-growing medium-sized enterprises in the horticultural sector to have access to essential financing for their developments. It has led to the creation of several hundred jobs.

■■ Guaranteeing refinancing for microfinance institutions (MFIs). ARIZ has refinanced two MFIs, which have experienced strong growth in their activity. They have both multiplied their credit portfolios by 4 to 5 and their number of clients by 2.5 to 4. At the same time, they have considerably increased the share of deposits in their liabilities.

■■

Close partnership with Ethiopian Airlines Since it was set up in 1946, the State-owned company Ethiopian Airlines has regularly expanded by providing domestic and international transport. This internationally renowned company is today the showcase for Ethiopia’s success. It has given priority to integrated development including air transport activities in the broad sense of the term: freight and passenger transport, maintenance, vocational training, ground handling assistance and catering.

Ethiopian Airlines has decided to invest in the quality of its human resources, as well as in the development of its freight activity, in order to remain competitive and meet the increasing needs of the aviation sector in Africa.

In this context, AFD has financed, via a loan, the construction of buildings and the procurement of educational equipment for the new Ethiopian Airlines training center, which has been designed to receive some 4,000 trainees from Africa and elsewhere.

AFD is also cofinancing, with Germany’s KfW, the construction of the new cargo terminal, which will increase its total annual capacity to 600,000 tons against 180,000 tons today. This new terminal will be able to handle the increase in the export volumes of meat, agricultural and horticultural products.

Ethiopian Airlines training center © Sylvain Kockmann, AFD

AGENCE FRANÇAISE DE DÉVELOPPEMENT

FFEM PROPARCO, AFD’s subsidiary dedicated to private investment, promotes private investment in emerging and developing countries in order to boost growth, promote sustainable development and reach the Millennium Development Goals. Its financing is tailored to the specific needs of investors in the productive sector, financial systems, infrastructure and private equity investment.

www.proparco.fr

The French Facility for Global Environment / Fonds Français pour l’Environnement Mondial (FFEM) is a bilateral public fund initiated by the French Government in 1994.

The FFEM secretariat and its financial management are entrusted to Agence Française de Développement (AFD). FFEM co-finances projects that encourage the protection of the global environment in developing countries. Its co-financing is exclusively via grants and is used for the implementation of pilot projects that combine environmental protection and economic development in the recipient countries. FFEM is an influential strategic instrument for the French policy on Official Development Assistance regarding global environmental protection. Its activities focus on the topics of biodiversity, international waters, the climate change, land degradation and desertification, persistent organic pollutants and the stratospheric ozone layer. By the end of 2014, FFEM had co-financed 275 projects with EUR 317m. Two‑thirds were earmarked for sub-Saharan Africa and the Mediterranean.

www.ffem.fr - ffem@afd.fr

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AGENCE FRANÇAISE DE DÉVELOPPEMENT

AFD ADDIS ABABA REGIONAL OFFICE

5 rue Roland Barthes 75598 Paris Cedex 12 – France Tél. +33 1 53 44 31 31 Fax +33 1 44 87 99 39 www.afd.fr

Guinea Conakry Road, Enat BLD 10 th floor P.O.Box 16978 - Addis Ababa - Ethiopia Tel: +251 11 5 15 47 14/ +251 11 5 52 65 64 Fax: (251) 11 5 52 28 98 afdaddisabeba@afd.fr ethiopia.afd.fr

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Creation: Planet 7 – June 2015

View of Gheralta, Tigray Region, Ethiopia © Sylvain Kockmann, AFD

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Agence Française de Développement (AFD), a public financial institution that implements the policy defined by the French Government, works to combat poverty and promote sustainable development. AFD operates on four continents via a network of 71 offices and finances and supports projects that improve living conditions for populations, boost economic growth and protect the planet. In 2014, AFD earmarked EUR 8.1bn to finance projects in developing countries and for overseas France.