Big Bank, Big Dreams!🌜

Welcome to the latest edition of ፍራንክ Digest!

Your weekly brief on all things Finance and Investing. Quick, enjoyable reads for busy professionals in 5 minutes or less.

Here’s what’s coming your way:

• ⚡BUZZ: CBE 1st To Break The Mould

• 🔫 PPP: Investment on a Large Scale

• 🗝️ The Key Takeaways

Thanks for reading!

BUZZ: Is CBE Going To Party Like It’s 1998?

Banking

With record breaking profits at the bank almost every year, party might be the right reaction. 

If anything, even CBE’s 53 story building should have done the conga dance 🕺 given the money generating run of the bank. 

So why are we talking about this party you say and are we invited? Well there is no party per say but there might be one in the near future. 

News came in a few days ago that our ሲቢኢ was venturing into a little business called Investment Banking.

Investment? Banking? Little?🤔 “እረ አብራሩ!” 

Don’t worry, we got you:

Think of the juggernauts of the world like JPMorgan Chase, Goldman Sachs, Société Générale, UBS, Citi Group…these banks became big through one of the most lucrative strategies ever that is Investment Banking.

Investment Banking has nothing to do with ‘banking’ in the traditional sense, instead it refers to an advisory service provided for big and complex financial transactions like:

• Conducting due diligence on company mergers and acquisitions (M&A),

• Corporate restructuring

• Debt and equity (ownership interest in the company) financing

• Asset management and more.

So where are our JPMorgans and our UBS’? Well they're not here…yet.

There have been a few hints during shareholders meetings of some banks in recent times where board members hinted at internal discussions aimed at creating an investment banking division within.

Although nothing concrete has been established yet, there is a strong sentiment that investment banking will become the reality pretty soon. 

CBE is the only bank to officially announce its willingness to venture into high finance ⬆️💸

If done right, the potential revenue explosion could be like putting mentos into a bottle of Coke. Boom. (Here’s a gif 👇to paint that picture for you)

But the real question here is ‘What does this mean for the broader financial sector?’ Well, with the stock market launch on the horizon, investment banks will be at the center of most transactions. 

If you’re a consistent newsletter reader that boosts our weekly opening rate, and we’re confident all of our ፍራንክ Digest family is 😉, we mentioned last week that the lack of interest in acquiring brokerage licenses is leaving gaps that financial institutions will need to fill.

IPOs or Initial Public Offerings are traditionally conducted by investment banks so this foray into the field is a natural step for big banks like CBE.

But can anyone become an investment bank?

Well sure. Dreams can be turned into reality, just look at Mo Salah’s hairline 👨‍🦰

There’s just a small question of an ETB 25 million minimum capital requirement (ETB 100 million for an institution already with a banking license), an investment which would probably require more than what’s in your precious piggy bank.

The license is ECMAs, the stock market watchdog, to give. And CBE has got the dough for it.

Now about that fiesta, let’s just hold off on that for now.

Key Takeaways

1. The largest bank in the country aims to beat out its competitors in the race to establish an investment banking division

2. Anyone interested in setting up an investment bank must show ETB 25M in capital or ETB 100M with a banking license

3. What does this mean to YOU: Very little to be fair, investment banking does not have any direct correlation to consumer banking. And at the moment, CBE’s foray is just a headline. But in the mid/long term term, the sector should generate new and lucrative jobs so be on the lookout.

ፍራንክ Picks 

🚶🏽 Event: GreSFET fair [Dec 2-3, 2024]

🗞️ In the news: Benishangul Gumuz has the gold midas touch!

♟️ Innovation: New homegrown tool for construction cost control!

PPP: Concept to Concrete

Finance

Alright, let’s dive into the world of Public-Private Partnerships (PPPs), because they’re not just some buzzword— they’re actually becoming a game changer! If you’ve been keeping an eye on Ethiopia’s development plans, you’ve probably noticed that PPPs have been popping up more and more in recent years.

Ethiopia’s government sets five-year economic plans to steer the economy. Since the Growth and Transformation Plan (GTP) back in 2011 to the current Homegrown Economic Reform (HGER), PPPs have been a major focus in the country’s quest for economic growth. The Ministry of Finance is giving it top priority, making sure PPPs get the attention, green light and stay on track 🥇

So, what’s the deal with PPPs?

Ethiopia is looking to bring in private sector money and expertise to help fund essential public services and infrastructure projects. The idea is that private companies, with their cash and know-how, can fill the gaps where public resources might fall short.

This is especially true when it comes to attracting foreign investors, though in certain areas—like housing—Ethiopia is actively encouraging local players to step in. It’s a win-win, with the public sector getting the benefit of private sector dynamism, while private companies get a shot at securing contracts in lucrative projects.

Let’s check out why PPPs are such a big deal:

• Money in the Bank- Public funds can be tight, so sharing the load with private investors frees up money for other pressing needs. Think of it as borrowing your friend’s car when yours is in ፓዌ ጋራዥ. You may have seen last week that the government tabled a request to add 50% to its already ETB 1 Trillion budget! PPPs would lessen the burden for the government.

• Expertise- Private companies bring in the kind of specialized knowledge that public institutions might not have on hand. This means projects are more likely to be delivered on time and to a high standard. It’s like hiring the best contractor to build your house—sure, it might cost more, but the results speak for themselves. We’re all too familiar how those state-led condominium housing projects panned out.

• Quality Service- If the private sector is footing the bill and running the show, there’s an added incentive to ensure the service is top-notch. After all, they’re in it for the profits, which means the project will need to be economically viable and deliver quality results.

How do these partnerships actually work?

There are a few different PPP models out there. Some common ones include management contracts, lease agreements, franchises, and the popular Build-Operate-Transfer (BOT) model. Under a BOT, for example, a private company finances, builds, and operates a project for a set period or profit target, after which ownership reverts to the government.

Take the Addis Ababa-Adama Expressway project, for example. This major toll-road project was delivered through a PPP with China Communications Construction Company (CCCC). They built it, running it for a while, and then hand over full ownership to the Ethiopian government. It’s one of those examples where the private sector does the heavy lifting, and the public sector eventually reaps the rewards.

And PPPs aren’t just for roads and bridges. Some of you might remember Lehulu, the centralized billing system for water, electricity, and phone services. More recently, we’ve seen PPPs for industrial parks and energy projects. The private sector is getting involved across the board, from utilities to major infrastructure.

Ethiopia certainly has plenty of opportunities for PPPs, especially in sectors like healthcare from hospitals to pharmaceutical factories; energy such as hydro, solar to geothermal generation; telecom by building mega servers supporting our increasingly connected devices and shoring the trend in Artificial Intelligence; and agriculture such as smart irrigation, storage and distribution infrastructure.

With most good things, there are a few challenges. The country is still working on developing the legal and regulatory systems to make PPPs more seamless. Economic stability, land access, and the ability to send profits abroad (yes, that’s a thing) are all hurdles that need to be addressed if PPPs are going to reach their full potential.

So, in a nutshell, PewPewPew isn’t just about shooting big words, it is a great idea, but there’s still some work to be done to make sure they’re as effective as they can be. With the right systems in place, the potential is huge. Who wouldn’t want a little private cash and public sector support to tackle big projects?

What does this mean to you?

If you have expertise in your field of work plus a wad of cash or financial backing to fill the infrastructure gap in Ethiopia, head over to the Ministry of Finance to find out how you can propose a PPP.

Key Takeaways

1. Five-Year economic plans: Since the Growth & Transformation Plan (GTP) to the Home Grown Economic Reform (HGER), private sector participation in the economy is being encouraged. The current one puts an emphasis on Public-Private Partnerships.

2. Oversight: The Ministry of Finance is in charge of managing and monitoring PPP initiatives in the country

3. Opportunities Plenty if you look in the right places from healthcare, energy, telecom and agriculture!

Thanks for sticking with us, ፍራንክ family! Keep those wallets smart and your inbox open - we’ll be sliding in next week!