Azeb and gang drive Ethiopian banks to the verge of collapse

By Abebe Gellaw

In mid-January, the ailing Development Bank of Ethiopia (DBE) declared once again that it is in need of rescue fund. The business weekly, Addis Fortune, reported that the bank called on the National Bank of Ethiopia (NBE) to inject more capital to refill its empty cash registers.

Though the health of all state banks has been in dramatic decline within the last ten years, crisis-ridden DBE has been in much more serious trouble carrying a huge burden on its shoulders in the form of non-performing loans. Much of these loans are taken out by crooked “borrowers” like the Endowment Fund for the Rehabilitation of Tigray (EFFORT), which is infamous for defaulting on the multi-billion birr loans it has been raking out from state banks. [EFFORT is now under the control of Meles Zenawi's wife, Azeb Mesfin.]



In mid-December, Addis Fortune reported that DBE “loaned” a whopping 1.7 billion birr ($141.6 million) to a privileged company, Messebo Cement Factory, one of the many companies owned by EFFORT. Messebo’s business plan was an expansion project, to build a second factory that will extend its market monopoly in the cement business. “The money, 96 million in euro [141.6 million dollars], has been obtained entirely as a loan from the Development Bank of Ethiopia (DBE); only 15 percent of this money was required in local currency,” the paper reported.



“The civil work has been completed. The machinery are now coming from China,” Brehanu Werede, acting general manager of the project, boasted.



But the interesting twist in the story is the fact that while ailing DBE has been on the verge of collapse, its incompetent management team and board, filled with the ruling TPLF loyalists and hirelings, clearly flouted the basic rule of banking by approving EFFORT’s greedy loan applications.



As a result of its crisis, cash strapped DBE has been unable to finance essential and productive entrepreneurial projects. It is turning down loan applications from serious entrepreneurs that have little political and ethnic leverage, while funnelling meagre resources to a borrower that has been deliberately confusing loans with grants.



Even more surprisingly, it happened at a time when DBE has once again pressed the red button for rescue injection from the national treasury. It doesn’t make sense to undertake such a mammoth expansion project on the part of Messebo at a time when the cement market is predicted to reach a saturation point with the opening of a dozen of new factories including Sheik Mohammed Al-Amoudi’s Derba Midroc Cement Factory, which is expected to start production at the end of this year.



DBE has a long but difficult history. Over one hundred years ago, the founder of the first bank in Ethiopia, Emperor Menelik II (1844-1913), realized the critical role banks play in development endeavours. When Emperor Menelik inaugurated Bank of Abyssinia on February 15, 1906, he undoubtedly envisioned it to grow, multiply and serve generations to come. That bank played a critical role to push his modernization agenda. It is also credited for financing the construction of the only railway line in Ethiopia, the Ethio-Djibouti railway, which currently finds itself on the verge of extinction.



Emperor Menelik had also set up another bank, solely committed to enhancing development and trade by providing badly needed financial facilities, despite the fact that resources were extremely meager. In 1909, the emperor launched the Societe Nationale d' Ethiopie Pour le Development de l' agriculture et de Commerce (The Society for the Promotion of Agriculture and Trade).



Since its establishment, the bank has undergone major restructuring and re-naming at least eight times. During the reigns of HaileSelassie and Mengistu Hailemariam, the bank did not register any dramatic growth nor faced critical illness. After the fall of the Derg, the bank saw dramatic changes as its non-performing loans had reportedly reached as much 94 per cent. In 2003, it was re-established as the Development Bank of Ethiopia. In July 2009, the bank declared that it completed the controversial Business Process Re-engineering (BPR) which has been allegedly used to push the agenda of the ruling elite to tighten its monopolistic grip on every key institution in the country.



It is an open secret that the Development Bank of Ethiopia has been experiencing more difficulties under the Meles regime than its predecessors. The main cause of its dire problems, as mentioned above, is related to the fact that the amount of loans it disburses and the amount it recovers have been showing a widening gap that cannot be easily filled with capital injections from external and internal sources.



According to the data obtained from the bank, from 1972 to 2009, DBE disbursed 13.3 billion birr in loans but could only collect 8.39 billion birr from borrowers. Laden with heavy burden of debts, the bank is making recurrent loan requests from internal and external sources. In fact, had the bank been in healthy condition, borrowing from external and internal sources would not have been a problem due to the fact that the bank was set up to operate as such.



Under normal circumstances, no bank in any part of the world will ever lend money to any borrower with terrible credit history. But the crooked client called EFFORT is a powerful part of the establishment being run by senior TPLF officials, including the Prime Minister’s wife, Azeb Mesfin, who has been appointed by her husband to control EFFORT’s multi-billion business empire.



No state bank official can dare say “No” to any amount of “loan” requests, no matter how outrageous it could be, to the Queen of Mega and her entourage. Obviously, a bank official handpicked by Meles can hardly be expected to refuse to oblige whenever his wife demands a loan or grant be issued, no matter how much or whether it is in local or hard currency. In fact, thanks to the unlimited power accorded to the tyrant’s wife, she has been known to employ real politik to get whatever she desires.



Dr. Seid Hassan, Economics and business Professor at Murray State University pointed out the fact that he had even come across credible complaints about Azeb Mesfin’s underhanded business activities including using her power and influence to force potentially competitive entrepreneurs to “sell” their start-ups to her or her business partners in order to enable her various companies and “joint ventures” to enjoy market dominance.



Last year, DBE celebrated its 100th anniversary in the presence of Zenawi’s octogenarian figurehead, President Girma Woldegiorgis, who recently celebrated his 86th birthday. As the celebration was in high tempo, interesting figures that were rarely made public were released by the officials.



One of the most eye-catching figures came from Abay Weldu, TPLF Executive Committee member as well as Deputy President of the State of Tigray, and DBE Northern Region Manager, Hadush Gebregziabher. At the bank’s diamond jubilee, both of them excitedly disclosed that since the fall of the Derg, the bank loaned over 3 billion birr to Tigray region, i.e. EFFORT and its affiliate business projects, as reported by TPLF’s own media outlet, Walta Information Centre.



What makes the story much more interesting is the fact that from 1970 to 2009, the bank loaned 13.2 billion birr to private businesses and government projects. Out of the total outlay disbursed in four decades, it was learnt that the bank loaned nearly 8.5 billion birr since the fall of the Derg, which was 19 years ago. That makes TPLF the biggest beneficiary of the “loan” bonanza taking the lion’s share, i.e. nearly 40 per cent of loans, from the struggling bank, and its other external and domestic sources of capital, including the Commercial Bank of Ethiopia and the National Bank of Ethiopia.



In addition to the 3 billion birr plus loan, Messebo Cement Factory was recently awarded 1.7 billion birr (147.6 million US dollars). That simply means that in the last 19 years, the TPLF and its ethnic affiliates took out over 4.7 billion birr of fund from the coffers of DBE, not to mention other states banks that are also victims of TPLF money grab scheme.



TPLF companies are currently undertaking “expansion” projects with funding from struggling state banks. But it is quite obvious that the funding should have been allocated fairly and equitably to finance serious development projects throughout Ethiopia including underserved and neglected regions.



In fact, there is also an incredible and outrageous twist to this saga. DBE reportedly had planned to lend around 2.4 billion birr this fiscal year. Of the 2.4 billion birr, 1.7 billion birr has already been granted to Messebo’s so-called expansion project. In other words, the privileged Messebo has been allowed to take well over 70 percent of the total outlay allocated this year to finance businesses and public projects in the whole of Ethiopia, while DBE has fallen in the habit of dialing for emergency services and rescuers. This huge inequality gap in TPLF’s Ethiopia clearly symbolizes Meles Zenawi’s ideology of gangster capitalism that has been designed to benefit only a selected few members of the ethnic junta in power.



As the TPLF leadership has been consistently claiming, EFFORT does not belong to the people of Ethiopia. Abadi Zemu, Sebhat Nega and even Gebru Asrat, who claims to be struggling against Meles Zenawi’s injustice have shamelessly claimed that EFFORT belongs to anyone with Tigrian blood as if being a Tigrian was a privilege to own multiple companies without any contributions. They are telling us that the business empire, which enjoys a huge array of privileges including unrestricted loans, exemption from external auditing, exemption from paying taxes, belongs only to the people of Tigray despite the fact that the EFFORT conglomerate is completely under the control of Meles, his wife and his closest cronies like Abadi Zemu, Arkebe Ekubay, Yohaness Ekubay, Getachew Belay, et al.



In a recent interview with VOA’s reporter Girmay Gebru, Abadi Zemu, who is the CEO of EFFORT and Executive Committee member of the TPLF, has said that Messebo Cement Factory already commands 40 per cent of the cement market in Ethiopia. Messebo was set up in 1995 with a registered capital of 240 million birr. It is puzzling why DBE approved Messebo’s 1.7 billion birr loan in foreign exchange to construct a second factory at a time when businesses are closing down due to severe shortages of hard currency and loan facilities.



It was just a few months ago that the international media jokingly reported about Ethiopia’s Coca-Cola drought as the East African Bottling Company, which was forced to suspend production of the global brand and laid off its employees as the state banks claimed to have run out of their foreign exchange reserves. Tens of thousands of business owners, especially those engaged in the import sector, have been seriously affected by the foreign exchange crunch.



The repeated firing and hiring of senior management officials within the last decade also reveal that DBE’s future has been uncertain and shaky. The bank has also been subjected to scathing criticism for being too generous on risky loans to EFFORT and failing to insist on repayment with interests in time. No matter where the bank is going, the fact that TPLF is draining state banks to undertake its discriminatory, monopolistic and illegal business projects will remain a thorny issue, and even a source of future conflicts for generations to come as the ongoing looting and corruption is too naked and unprecedented in the history of the poor nation.