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- 💸 Money Just Got More Expensive
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:
📈 Higher Interest Rates, Lower Interest
🚪 ‘Knock Knock’ It’s The Tax Office
🗝️ The Key Takeaways
Thanks for reading!
CBE Raises The Roof
Borrowing
So, here we are: Commercial Bank of Ethiopia (CBE) hikes its interest rates, while its neighbor across the border, Kenya, is proudly slashing theirs.
You’ve got to wonder, what’s going on here, right? What does this mean for businesses and consumers alike, especially in a continent where interest rates are already sky-high compared to other developing regions like Asia.
Here’s the lowdown: High interest rates have been a big hurdle for businesses and households across Africa. When loans cost more, it’s harder for people to access financial services—and who can blame them? With rising costs everywhere, borrowing from the bank starts to look less like a lifeline and more like a weight around your neck.
Now, Kenya’s central bank recently cut its regulatory rate and cash reserve ratio, hoping to release more capital from banks. This move, coupled with digital banking and financial literacy programs, has been a game-changer for financial inclusion. It’s helping break down the barriers to banking, especially for those living outside urban centers where services are often limited.
Meanwhile, back in Ethiopia, CBE's decision to raise interest rates is a bit of a head-scratcher. This could push other private banks to follow suit, and the ripple effect could make credit even harder to come by.
Not great news for businesses and consumers trying to keep their heads above water.
Sure, CBE’s giving a small nod to agricultural loans and maintaining mortgage rates for residential ኮንዶሚኒየም, but let’s be real—does that really cut it when the cost of borrowing just went up across the board?
CBE’s excuse for this move? They say it’s about the increased cost of mobilizing savings. But honestly, with mobile banking being the norm nowadays, we’re not buying it.
There’s got to be more to this story.
Now, if we were to entertain CBE’s reasoning, here’s what might make sense: CBE could focus on lowering operational costs and beefing up digital banking solutions to make services more accessible, rather than jacking up rates for everyone.
But, there are a couple of other, more likely explanations behind this rate revision. Here’s where it gets interesting:
The government might be using CBE as a tool to crank up interest rates and fight inflation. Now that the National Bank of Ethiopia (NBE) is trying to pose as an independent regulator. It’s a classic monetary policy move—when borrowing costs rise, businesses and consumers tend to spend less, which lowers demand.
That’s the theory anyway, and prices across the board (from goods to real estate) start to cool off.
But here’s the kicker: Ethiopia’s inflation is more of a supply-side issue than a demand-side one. So, not sure if this move is the magic fix they think it is.
The government is also gearing up for an upcoming bond issuance to recapitalize CBE, which has been pushing away some messy non-performing loans (NPLs) from past public projects. If they want future bond investors to feel good about where their money’s going, they need to show that CBE is in better shape and operating in a more market-driven way.
If Ethiopia wants to foster economic growth, we need to create an environment where businesses can access affordable loans to scale up and get efficient. Helping SMEs grow into large operations would be a win-win for everyone—cheaper costs, more jobs, you name it. And when it comes to funding public projects, CBE needs to act like a responsible bank, assessing costs and benefits carefully before pulling the trigger on any big loans.
Taking in the bigger picture, according to The Economist, Africa has too many businesses, too little business. Meaning, a lot of businesses doing the same thing, but not enough diversity or specialization at scale. Without funding for expansion or R&D, economies are stuck playing catch-up.
Ethiopia needs affordable borrowing costs to encourage businesses to grow, create jobs, and be competitive globally (💲ዳላር💲).
And for individuals, lower borrowing costs mean more disposable income and the chance to spend on things like education, housing and many more.
Access to credit is crucial, and if the government isn’t keeping a close eye on it, things could get tricky.
What does this mean to you?
Affordable loans are the lifeblood of any economy. Without them, everyone—businesses, consumers, and the economy at large—feels the pinch.
Meanwhile, don’t shy away from learning programs, check out what’s on offer at banks and take a closer look at the costs.
Key Takeaways
Kenya Opens the Tap, Ethiopia Tightens It – While Kenya is cutting rates to boost lending, CBE’s hike makes borrowing pricier, leaving businesses and consumers in a tighter spot.
Inflation Fight or Financial Fix? – The government may be using CBE to curb inflation and clean up its books ahead of a bond sale, but with Ethiopia’s inflation driven by supply issues, this move might miss the mark.
Expensive Loans, Stalled Growth – When borrowing gets too costly, businesses struggle to expand, jobs dry up, and the economy slows—making affordable credit a must for real growth.
ፍራንክ Picks
🗞️ In the news: Ethiopia flirts with Crypto adoption with Bitcoinbirr summit
Dear Businesses, Pay Up or Pack Up
Business
More profit, more problems… because the only thing growing faster than your business in our country is your tax bill.
If you thought doing business in Ethiopia was like running a marathon with a backpack full of bricks, Sheger City just added a few more kilos—then told you to run faster.
This newly minted administrative zone, formed by merging several towns on the outskirts of Addis, is a haven for businesses thanks to its proximity to the capital, low lease rates and booming industrial activity.
Well, it was a haven anyway.
Realizing its position as a municipal giant, Sheger City is now flexing its tax-collecting muscles.
The latest tax enforcement blitz has left businesses scrambling, with sudden tax hikes, lease fee spikes, and penalties that feel more like ransom notes than revenue collection. Water bottlers like SBG Industry Plc. (Arki Water) and Asku Plc. were hit with surprise bills running into the tens of millions.
But they’re not alone—Sheger’s tax hammer has also landed on Joytech Plc., the agricultural company that supplies fresh herbs and produce to our favorite supermarkets like Bambis and Fresh Corner. If you’ve ever picked up rosemary or lettuce there, chances are it came from Joytech’s farms.
Skyrocketing land lease fees is just another indication that it is harder to pursue any kind of business activity, especially one where huge investment is needed.
Moves like this make Ethiopia look like a trophy spouse—glamorous and promising from a distance, but risky enough up close to make both local and foreign investors think twice before committing.
“Surprise! You Owe Us Millions”
It’s not just a handful of companies under fire—more than half of the 134 beverage manufacturers under Sheger City’s jurisdiction have been slapped with similar demands.
The logic? More taxes = more government revenue. The reality? A perfect storm of business closures, job losses, and an economy that keeps tripping over itself.
Take SBG’s case: they were told to pay an 18 million Br down payment as part of a jaw-dropping 142 million Br lease adjustment. And by adjustment, we mean increase. Indeed, their lease rates went from 1.21 birr per square to 56 birr per square meter. Let that sink in.
Meanwhile, Asku Plc. was slapped with a 30 million Br tax bill for similar hikes.
The Irony
Ethiopia’s tax-to-GDP ratio is at 8.6%, well below the African average of 16.5% (World Bank, 2023). The problem isn’t just that businesses aren’t paying—it’s also that there aren’t enough businesses to tax.
And here’s the thing about taxes—they only work if businesses are actually running.
Killing businesses means less tax revenue, and when companies like Joytech, SBG, and Asku get squeezed too hard, here’s what happens:
They shut down or scale back. No revenue = no profit taxes.
Employees lose their jobs. These 3 companies alone have a combined workforce of about 1000 employees. Unemployed workers don’t pay income taxes.
Suppliers, distributors, and retailers suffer. Less business means lower corporate, payroll and VAT tax collections from all those transactions that would have happened.
We’re better served creating a bigger tax base than overburdening existing taxpayers and risk losing them altogether.
More Headaches for Business Owners
As if the tax hikes weren’t enough, businesses are now being told to have at least one employee on payroll—whether they need one or not. The idea is that this will boost income tax and pension contributions.
Even shareholders—people who own companies—are now being classified as employees so the taxman can deduct a piece of their earnings. That’s like calling the captain of a ship a passenger and charging them for a ticket.
A Smarter Approach: Stability Over Surprise Attacks
We need smarter taxation, not just higher taxation. Here’s a few ideas that might actually work:
Create a clear, stable, predictable tax system – Businesses should know exactly what they owe and why. No more last-minute, arbitrary hikes. If taxes are reasonable and predictable, businesses can plan for them.
Expand the tax base by formalizing more businesses. Ethiopia has 2.5 million informal businesses (Ethiopian Statistics Service, 2023). Instead of squeezing the ones that are already paying, why not bring more into the system?
Offer incentives for tax compliance – Reward companies that pay on time rather than punishing them unpredictably.
Encourage business growth instead of stifling it. More successful businesses mean more taxes in the long run. But they need breathing room to grow.
Final Thought: Who’s Winning Here?
In the short term, these aggressive tax hikes might help plug budget gaps. But in the long run? It’s a self-inflicted wound.
You can’t milk a cow that’s already gone to the slaughterhouse. And at this rate, Sheger City might just run out of cows.
Key Takeaways
Sheger City’s Tax Push – New tax hikes and lease adjustments are hitting businesses hard, raising concerns about sustainability.
Too Much Squeeze, Too Little Juice – Piling on taxes might boost short-term revenue but sudden tax burdens risk closures, job losses, and a shrinking tax base—long-term stability matters.
A Smarter Approach – Predictable policies and a broader tax base could drive revenue without stifling business growth.
Thanks for sticking with us, ፍራንክ family! Keep those wallets smart and your inbox open - we’ll be sliding in next week!
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