April 6th, 2009 Print Print Email Email

The corporate bond issued by the Ethiopian Electric Power Corporation (EEPCO) to finance the Gilgel Gibe III hydroelectric project (GGHEP-III) has generated a lot of interest and serious concerns within the Ethiopian diaspora. (more…)

The corporate bond issued by the Ethiopian Electric Power Corporation (EEPCO) to finance the Gilgel Gibe III hydroelectric project (GGHEP-III) has generated a lot of interest and serious concerns within the Ethiopian diaspora. Discussions on the blogs and other webpages on the matter reflect how much Ethiopians are torn between their sense of commitment to their country on one hand and concern with the behaviour of the regime on the other. On its completion, the Gilgel Gibe dam will have 1870 MW electricity generation capacity and 6,400 GWh of average energy per year to Ethiopia’s interconnected system.

Those opposed to the government fear that buying the bond is tantamount to encouraging the TPLF/EPRDF to persist in its authoritarianism. Politics aside, some individuals struggle with themselves out of environmental consideration. Others worry about the prospects of GGHEP-III, whether the controversy surrounding it would spill over into the realm of the happy state of Ethio-Kenya relations and eventually impede the project’s fruition. For this, they point to the rising pressure the Kenyan government is facing from its citizens around the Lake Turkana region and the many professional international environmental campaigners that have joined hands. The fear is that Kenya may saddle off with the local and international environmental campaigners, thereby making the project a kiss of death from business point of view for potential financiers, perhaps forcing them to reconsider their interest and possible identification with it.

On the merit of the project, many Ethiopians are convinced that GGHEP-III is a great transformational opportunity for Ethiopia. Above all, to date electricity coverage of the country is 17 percent. The simple fact is that, in spite of its huge potentials, today Ethiopia is among the least electrified of Sub-Saharan African countries. If this state of affairs were allowed to continue, the awareness has sunk that the lives of our people would hardly improve. Nor would the country be able to ensure its continued survival by increasing domestic production and meeting local needs, improving productivity and trading gainfully with the outside world. Of course, everyone realizes that electricity facilitates innovation and enhances productivity.

Nevertheless, the positive recognition that the success of GGHEP-III would bring our country’s long journey a step closer to modernity and the threshold of industrialization and brighten the lives of our people is being challenged under every a few pretexts. There is no doubt that discussions both for and against the project emanate from citizens with genuine concerns for their country. Indeed it is one expression of the undercurrent of political polarization amongst Ethiopians that is crying out for solution. What is lacking in these debates, however, is an alternative suggestion by those opposed to the Millennium Bond, the absence of which seems to ignore the pressing needs of the country. For development experts, this situation has become a rich mine of live experiences revealing the extent to which unsettled political problems hamper national development no less than the lack of appropriate institutions, know-how, investment or the market for goods.

This article attempts to discuss the advantages and disadvantages of purchasing the Millennium Bond. In its first part, it responds to the invitation to me by a participant in a web discussion, alias Ehhron, who, in commenting on my article Ethiopia: Troubling Times & Troubling Actions (www.nazret.com of 30 March) asked for my views on the pros and cons of buying the bond. Here I am offering that view. Please note this write-up is not intended to be an advice to any one, but an attempt to shell out the relevant issues in the context of our country’s particular situation.


Being the first of its type, the Millennium Bond is an experimental initiative. The bond is limited to Ethiopians with access to dollars, euros, pound, yens, Swiss franc, etc. Its success and failures would provide a wealth of information to both the government and the diaspora, although this many not be that opportune a moment for the diaspora, this being a time of economic downturn.

The minimum purchase requirement is USD 500. The interest payment is annual and the offer has three term structures of five, seven, and ten years of 4.0%, 4.5% and 5.0% rates respectively. The Ethiopian government has guaranteed the bond, with the Commercial Bank of Ethiopia (CBE) acting as EEPCO’s agent. Interest income is tax-exempt. When buying the bond, the investor is promised the option of opening a diaspora foreign currency account or direct cash payment by presenting a foreign currency declaration form.

This Millennium Bond is not a complicated instrument, since Ethiopia does not have a secondary market—a market for trading securities and bonds by original owners and/or their agents who happen to be in an immediate need of cash, or wishing to change their portfolio. In addition, the Ethiopian economy is not that sensitive to interest rate movements. Nevertheless, interest rate is fixed throughout the life of the bond. In that sense, it is much like a certificate of deposit (CD), that is, with no direct market risks.

However, rest assured that there is no free lunch. There are certain factors that would chip into the bondholders’ earnings or other charges. At maturity, the annual interest is paid in either foreign exchange to the account or in birr if one were to collect the proceeds in person while vacationing. The brochure expressly states that payment would be made at the prevailing exchange rate. Regardless of sources of income, inflation erodes value. If inflation is high, it affects the exchange rate value, as the bond is not inflation-indexed. Here we are not talking about the level of today’s inflation or its immediate effect, which could have been disastrous by any standards, in interest earnings payments were to be made today. This is more applicable especially to a person who would collect it in birr.

Suppose the global inflation average rate is five percent and Ethiopia’s ten percent. The five percent differential would sap out the strength or purchasing power of the local currency. Still another uncertainty is the fact that the Ethiopian birr does not respond freely to the real situation in international currency market. It is adjusted by the central bank, as needed. Moreover, it is important to remember that going forward no one can tell with certainty what kind of economic environment would prevail in Ethiopia and at the global level, even by the end of this year, and how the impact of time affects the value of money.

A few remaining considerations include taxation and bank service charges on both ends. First, a buyer of the funds must be prepared to seek clarification on payment of taxes in his country of residence, unless Ethiopia has signed treaty waiving double taxation with the country concerned. Second, when one opens an account or sends money to buy the bond, banks in the country of residence charge for their services, as would CBE since it is a bank living on income from services, among other sources.

Not a serious concern though, but a third issue is call risk, which is unlikely for EEPCO to seek a recall of the bond. Call risk occurs when the issuer decides to withdraw the bond half way through the term or at some point. The question is, how would call risk affect a bond holder. Under normal circumstances, call risk occurs when interest falls significantly and the bond issuer realizes that it is paying higher rate than the market and decides to make the bond callable to reissue it in line with the lower interest rate. In such circumstances, or when the bond is reissued at a lower rate, bondholders lose out on the original high rate of their bond. The objective of the corporation is to make a good use of its money (profitability).

In contrast, if at some point a bondholder is in need of money and contemplates to call CBE to cash in his/her bond, the line would surely go dead. Bond in a country without a secondary market is not a liquid asset to be converted immediately into cash. Therefore, he or she would have to sit put until its maturity.

Another consideration is what would happen to the bond, if the government collapses, or if EEPCO goes bankrupt. The two are inseparable, as EEPCO is government owned. In any case, with respect to government collapse, payment would not completely be lost, though it may take a bit longer time. Following international law and existing practices, the successor government would inherit the debt and would be required to settle it, unless Ethiopia goes the Somalia road. Once such instruments are issued, guaranteed by the government, the government is under obligation to honour it. Failure to do so not only creates a bad image for the country internationally, but also discredit the government once and for all in the eyes of the diaspora, irrespective of whether they are TPLF/EPRDF supporters or not.

Furthermore, it would give rise to political pressures by the adopted home countries of the bondholders in defence of the hard-earned assets of their adopted citizens/legal residents. The international community would see such failure as a serious breach of contract by the government. In this context, suffice it to say that it is our national character and tradition, equally shared by successive Ethiopian governments, to loathe delay or fail to honour debt obligations.

The last point I want to raise at this point is whether the interest rates offer adequate remuneration to capital (bond price). On the surface of it, besides the above-mentioned risks, an affirmative answer is inhibited by the fact that the rate is low. However, the offer has to be judged not only by the face value of the bond, but also within the context of the prevailing reality and what motivates the individual to invest in the Millennium Bond in the first place. If the motive is higher income, there may be better alternatives outside Ethiopia.

It is important to remember that bonds are good only when interest rates are high. Unfortunately, we will continue to live for some time to come in a low interest rate global environment. For instance, in the first weekend of April, the inflation-indexed ten-year US Treasury bond was paying 2.89 percent. The ten-year tax-exempt municipal bonds, the ‘munis’, in the US reached an annual yield of 3.44 percent. Similarly, in the UK, a ten-year bond pays 3.42 percent (source Bloomberg). On top of all this, sign of recovery in the world economy is unlikely to occur before the end of 2010 or early 2011, according to the latest revised international forecasts. Bear in mind also, our country’s economic tribulations have not yet begun in earnest, as the rest of the world is grappling with the dangers of deflation—falling prices.


In shedding light on the importance of the GGHEP-III, a monthly international publication International Water Power and Dam Engineering writes, “The project’s dam will be one of the highest in Africa, at 240m, creating a reservoir with storage capacity of 14.7 mm3 of water, while the ten turbines are expected to provide electricity from 2013. Claudio Lautizi, managing director of Salini, says that it is the largest hydroelectric project under construction in Africa. He added, ‘As the price of oil is getting more expensive, hydro power could be the white oil of Ethiopia’. The project, which will be located in the Omo-Gibe Basin in the south-west of the country, will cost a total of US$2B including transmission sector requirements.”

In late February, when the African Development Bank (ADB) postponed its consideration of the project’s profile and its funding request for the dam, it created a sense of anxiety that it might decline. However, on 4 April, the manager of EEPCO disclosed to the media that ADB has given form commitment to fund it. While ADB’s commitment level is not clearly known, at least to this writer, it is estimated to be in the range of $200 million, out of the close to two billion dollars required for completion of the dam, including power lines.

According to the project profile document, “the government plans to increase electricity coverage from 22% in 2005 to 50% by 2010 and the number of customers from, 138,000 to 2.6 million. Establishing new connection to the grid requires that there is an adequate supply of power. The increase in generating capacity provided by Gibe III, together with ongoing rural electrification programmes will facilitate improved access to electricity for the Ethiopian population with associated downstream, benefits.”

In the periods between World War II and the present, Ethiopia’s hands had been tied, rendering it incapable of using its natural resources, partly because of the selfish interests of neighbouring countries, especially Egypt, and the collusion of international politics and finance. Thus, not only the previous two governments lacked the resources and fortitude, but also intermittent wars, conflicts and famine had misdirected resources and attention. As a result, the various energy plans that have been developed since the late 1960s remained stacked in government drawers until the mid-1990s the TPLF/EPRDF began dusting them off and brought them up to date with newer projects included.

In the light of this, if a diaspora investor’s motive were to respond to an initiative that would transform Ethiopia’s future, surely there would be no better opportunity than this, despite citizens’ detestation of the authoritarianism of their government. As an Ethiopian, I strongly believe that GGHEP-III is a vital undertaking for Ethiopia’s economic future and its social development.


Should Ethiopians be persuaded by their total and justifiable disagreement with government politics and reject this opportunity? If the answer to this question is in the affirmative, those opposed to GGHEP-III should come up with alternative proposals how to build power infrastructures for the country, ensure energy supplies and funding sources, lest rejection become tantamount to throwing the baby with the baby water. The country’s backwardness and the pressing urgency of necessity requires that politics should give precedence to the country’s vital interest on this matter.

Otherwise, opposition to a developmental project of such magnitude until we see the back of Meles, I am afraid, may share kinship with none other than smug complacency with backwardness. True, if Meles departs, perhaps one could assume reluctantly that a more amenable political environment for pluralistic democracy could be created in our country. Nevertheless, a delay of GGHEP-III would only compel the country to forego the lower opportunity cost today in preference to higher actual costs in future. The outcome of such a choice would be unbearable debt burden on the country, which the future borrowing would entail.

I am not saying the fact that Ethiopia gets electricity would solve all its problems. With Meles or without, Ethiopia needs to take concerted actions in all fronts of its national endeavours. Chief among these are:

■ Respect to the human rights and civil rights of citizens;
■ Freeing the civil service from servitude to the ruling party whose short-term interests often conflicts with the national interests;
■ Democratizing the country through the building of an independent institutional mechanism as a vehicle to assess continuously the country’s steps along the path of democracy by submitting to the public and parliament official reports on progress and setbacks. Countries such as Indonesia have garnered great benefits from such an approach and have become confident in the future of their democracy;
■ Resolving the agricultural problem through national consensus and modern scientific methods free from party political entanglements;
■ Bridging the ever-widening chasm between the regime and the educated citizenry and ensuring that national development, especially economic growth is broad based.

Equally, the Millennium bond provides an opportunity for the diaspora community to prove its financial strength and cultivate its influence on national politics. To date, at least, until economies in the developed countries began to nosedive, remittances from Ethiopians abroad have figured second or third place after export earnings and foreign aid. Some estimates put its share as high as 3.3 percent of GDP. The 2007/08 figures from the Ministry of Finance come close to that estimate, as I touched upon en passé in my article of 5 February 2008 entitled, “THE CASE FOR MUCH NEEDED REFORM: IS ETHIOPIA’S ECONOMIC GROWTH SUSTAINABLE? (www.abugidainfo.com). It shows that the senders of such monies wield considerable potential power the impact of which has so far been diminished by its fragmentation. Were the diaspora were to act in an organized fashion on a platform of common cause with the nation, it could have given them a weighty say in our national affairs.

If this influence is to be exercised responsibly, to start with, it could weigh in on the style of governance in our country mostly by restraining the ‘l’état, c’est moi” attitude—literal meaning—‘I am the state’. One gets a better sense of this phrase when the oft cited expression of Ethiopian leaders—‘mengedun cherq yargilach—is translated into Amharic. History has initially documented it to expose the arrogance of power exhibited by the defunct French monarchy centuries back, although it is still maintained by Ethiopian leaders. Therefore, a deliberative use of that power by the diaspora could have forced the TPLF/EPRDF regime to curb its hostility toward educated Ethiopians in general and its strident campaigns against Ethiopians in foreign countries in particular.

At some point, if careful thought and framework is given to it, this diaspora financial strength may open up lines of communication that could bring sanity to our political processes and contribute to the speed of democratizing our country. In a country with weak opposition parties internally and fragmented entities in the diaspora, perhaps the time has come to assess how such influence could be utilized in future. I see the possibility of it in bringing many citizens to focus on more practical goals and work together to be able to provide the much needed support and encouragement to those in the country who have genuinely committed themselves to bring better days to Ethiopia and to all Ethiopians, irrespective of religion and ethnic origin.


Earlier I touched upon the growing rage of the international environmental lobby against Ethiopia and the Kenyan government. With their consistently anti-dam philosophy anywhere and everywhere, environmentalists from different countries have bandied together opposing the construction of the Gilgel Gibe III dam. Their campaign papers discredit the environmental assessment done by Ethiopian experts, in most instances even without verifying the accuracy of their information. For instance, a case in point is the opposition by International Rivers (www.internationalriviers.org), one of its charges against Ethiopia being, “the project is a commercial one: they [Ethiopia] want to make money selling the power elsewhere, not provide power to their own people. For Kenya, it’s a matter of allowing one part of the country to be devastated so that others may get a little more power.”

I am doubtful that the Ethiopian and Kenyan governments could promote their interests by conspiring against their citizens. Moreover, there is nothing wrong with the marketing aspect of electricity, once the country has met its local needs. However, if government were to give priority to exporting power, that is, without electrifying the countryside, I fully share their concern. Nonetheless, there is a public pledge by Ethiopian officials that not a single watt of electricity would cross Ethiopia’s international frontiers before the country’s needs are addressed. Electrification of the countryside is also put as one objective of the five-year national plan. Not that the regime is known for keeping its promises, still should its pursuit of foreign currency prevail, the Ethiopian diaspora should be prepared to engage in a sustained campaign to expose government irresponsibility in abandoning the welfare of its own people.

Environmentalists and the world media have justifiably raised the issue of consultations with the local people on their priorities. The chorus of condemnations in this regard is not surprising, many around the world being aware of this government’s record of disregard for fundamental human rights. Personally, I associate myself with their scepticism about the level and nature of prior consultations with the population around the areas of the tributary rivers and the Omo, where the humongous dam is likely to upset their way of life and natural habitat. The environmental assessment programme covers all issues affecting the people and seems to be in order, if it is implemented, as indicated in the study. In the event that its conclusions are not any different, the mission the Italian government is planning to send shortly to review the whole situation would also strengthen the Ethiopian impact assessment of construction of the dam.

Having said that, I must confess I am already fully warmed up by idea of the benefit those long forgotten people would derive once the project is up and running. Of course, this is assuming that simultaneously with the building of the dam appropriate support and developmental projects, including resettlements, should have been conceived and implementation began, instead of staking credibility on the cash compensation to be paid to the affected population as a sign of commitment. Nonetheless, if consideration of their habitat is to be given priority over construction of the project, I am certain that this would only relegate the population there to an eternity of backwardness—a status of abandonment that has prevailed for many ever since Adam and Eve were expelled from the Garden of Eden. Hence, on this front the diaspora should be prepared to keep its eyes open and be at the forefront to defend the rights of those people.

Equally valid is the criticism regarding the awarding of the construction contract to an Italian company Salini Construttori S.P.A, without international bidding. There, the government has disgraced itself with its habitual haste to err and disregard for legally acceptable standards in this matter. There is no doubt that it has miserably failed the transparency test. This has provided the World Bank additional reason to refuse funding for the project. The Bank’s argument is that there is not sufficient energy demand in the country to justify such a huge investment.

At this stage, where the construction has progressed with boring deep into the ground and tunnelling through forbidding terrains, heavy costs have been incurred, and, therefore, irrespective of whoever is contemplating the notion of termination of the project is ill advised and inconsiderate of the vital interests of the country.

Consequently, however, aware that the transparency question is legitimate, it is important for government to make the terms of the contract including the costs public information. I might add that this issue should not cast stain on the integrity of the Italian company, given its highly appreciated standard of performance in Ethiopia running several decades in contractual agreements undertaken by successive Ethiopian governments.


Bonds are debt instruments to the issuer—governments and corporations alike—and a source of regular income to its owners during the life of the bond. This is also true of the Millennium Bond, which is issued to finance GGHEP-III. Its issuance is an indication of the seriousness of foreign exchange shortage in the country. The government’s intention is to raise as much foreign exchange as possible exclusively from the Ethiopian diaspora. Government is aware that the bond would be dead on arrival, if it were offered at the international bond market due to the unfavourable international ratings it would receive. Foreign investors would be disinterested in this bond mainly for the following reasons:

First, as mentioned above, the rating is problematic. There would be concern that the high risk it entails for capital is not matched by comparable remuneration with the present offer of 4.0% to 5.0%.

Second, analysts would tell investors that the economy is undiversified, mainly because of the country’s low level of development. While they are aware that Ethiopia has benefited immensely in recent years from the improved global economic environment, the economy remains fragile and its fundamentals iffy, especially as the last three years of macroeconomic instability have shown. Internally, factors driving inflation range from drought to unsound policy measures. Sensitivity to external shocks is strong, at times their impacts devastating— especially the escalating prices of oil, chemicals and food imports, as the 2005-2009 levels of inflation and the unbearable level of prices have shown.

Another factor is the rigidly backward structure of the economy and the country’s self-imposed landlocked condition that hampers higher production, gives rise to chocking economic problems, eats into profitability and depresses productivity, thereby contributing to chronic economic difficulties. On government side, this imposes the need for constant borrowing and accumulation of internal and external debts that are barely sustained by matching increases in domestic production and exports. That is also the primary reason for the chronic imbalances in the balance of payments and the constant shortage of foreign exchange.

Thirdly, foreign investors do not see Ethiopia as a business friendly country. The economy suffers from excessive political interference and arbitrary controls, hence the main factor for Ethiopia not to enjoy a surge of foreign investment or higher per capita foreign aid. Consequently, the lack of confidence on the part of the fledgling private sector has restricted its role in the economy, although in recent years the pressure from donors and the World Bank has shown a few encouraging signs. Nonetheless, these gains are often undermined by impulsive government actions at every turn.

Fourth, for foreign investors Ethiopia’s stability as a Horn of Africa country is a source of constant concern. Government is unpopular; there are open conflicts in the east, a no war no peace situation in the north and the presence of ethnic and religious conflict concerns that the government has recently attributed to some government officials trying to exploit the situation. Low intensity conflicts exist in the different parts of the country, although their impact is limited. In the eyes of many observers, Ethiopia is one of those few countries that continue to lose its trained and experienced manpower even in times of relative peace.

In brief, government’s choice of the diaspora as market for its Millennium Bond is a tacit acknowledgement of the above-enumerated hindrances.

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