Ethiopian Rail Corporation’s Debt: How Big Is It?



The Ethiopian Reporter (ER) newspaper has been presenting shocking facts about extents of corporate bankruptcies. These have escalated particularly since #OromoProtests started in November 2015. Such reports are becoming commonplace so much that we do not even pay much attention to them. We have been reading about a series of scandals related to Sugar Corporation, METC (the Military Engineering Complex), and lately that of the Ethiopian Railway Transport Corporation (ERC).

In this piece, I will briefly comment on the latest scandal, related to ERC’s murky finance. The ER stated quoted ERC management report and presented troubling accounts of the corporation’s escalating debt, currently standing at birr 102.5 billion or USD 4.6 billion. Let’s put this figure in a context – how big is it relative to the size of the Ethiopian economy?

Birr 1,031 or USD 46, if expressed as debt per person (dividing the figure by population of Ethiopia)
7.4% of GDP (expressing it as a ratio to Ethiopia’s national income)

About 50% of the income generated in the whole of Ethiopia’s industrial sector 180% of the whole of Ethiopia’s manufacturing sector (nearly twice the size of total income generated in the manufacturing sector, including small scale handcrafts)

By any stretch of imagination, ERC’s debt is a colossal figure. It is not something that Ethiopians would take as yet another financial scandal regading some corporate entity. At the end of the day, it is Ethiopians who would foot this bill. After all the money does not simply melt away, it must have been pocketed by some group who have been busy siphoning off public money. It is not without reason that the authorities have been so much addicted to mega projects. Such big projects have been convenient mechanisms for embezzlement.

We all recall circumstances through which the Addis Rail was started. A very large construction project was completed, completely revamping the Addis Road Networks. Though expensive, this was necessary. The ring road and the rest were completed. However, Addis residents barely started driving on the new and fresh looking roads when the government came up with some crazy idea – yet another mega project, a gigantic city rail network!

Ironically the rail infrastructure was put in place by digging up the newly build asphalt roads. It was madness. A logical next step would have been a tram rail system, which requires only a minor modification – burying the rails in the asphalt road so that the roads would be shared by trams and other vehicles. That option was not acceptable to the authorities because it was not big enough to generate perpetual business opportunities for their cronies.

Now we witness a rather ridiculous situation. By coincidence, the day the Addis Rail started operating, I was back home. The next day, as I was driving in Addis, I witnessed something sounding a comedy show – only one coach rail was moving up on that ugly structure. Well, in that case, if it is only a single coach that moves on it, then what is the point putting up that amorphous structure? I hear the number of coaches moving on those rail networks has been two, three, or four at most.

The bottom line is this. That kind of system can be supported only by a vibrant economy – a healthy economy that generates decent income for citizens! In a normally functioning and genuinely rapidly growing economy, business opportunities expand in all corners of a large city like Addis Ababa. This induces movements of people, commuting between their places of work and residences as well as between premises to do business. In the process income is generated and their capacity to pay for fares get enhanced. If all these things are in place, the public transport sector such as the ERC can balance its books, including meeting its domestic as well as foreign debt obligations.

The situation in Ethiopia is quite different, in fact rather perverse. To begin with, the Ethiopian Economy is growing rapidly only on paper and in official government statistics. The fact on the ground tells the exact opposite. There isn’t much vibrant business opportunity. People wish to travel but that wish remains only a desire – government policy has curtailed their capacity to pay fares at a rate that would make ERC profitable. So, ERC operates at much smaller rate than its full capacity, perhaps 10% to 20%. If circumstances would not change, ERC will never ever able to pay its debt. The principal and interest will accumulate and debt would escalate, as it already has, leaving behind a level of debt whose size will become larger and larger over the years as a share of GDP, industry and manufacturing. The debt per citizen will most certainly become even larger.

It should be noted here I confined my analysis only to the case of ERC. If I closely examine the implications of other financial scandals, it is possible to reveal how alarming each case is. In a nutshell the whole of the Ethiopian economy is in a dire state, whose severity is much more grave than most Ethiopians and the donor community may realize. The sooner the on-going madness is put to stop the better.

The Ethiopian Reporter


28 Jan, 2017

By Yohannes Anberbir

(The Ethiopian Reporter) — The staggering level of external debt incurred by the Ethiopian Railways Corporation (ERC) has prompted authorities to look into ways of mitigating the problem.

The authorities have so far identified Transit Oriented Development (TOD) as a long-term sustainable plan. Through TOD, there are plan to supplement corporation revenue with additional sources by developing tourism sites and dry ports along the railway infrastructure, a high-ranking official told The Reporter. Regarding the swelling debt of the corporation, the authorities are looking into several options. Among these, transferring some portion of ERC’s stakes to foreign firms has been identified as a last resort measure, the official told The Reporter.

An official document obtained by The Reporter details the present financial status of the corporation. According to the document, ERC owes a total of 102.5 billion birr debt, of which 95.7 billion birr is external debt borrowed from the Export-Import (EXIM) Bank of China and from European banks facilitated by Credit Suisse Bank.

The remaining debt was owed to local sources, mainly the state-owned Commercial Bank of Ethiopia (CBE).
The corporation has expended close to USD 500 million for the Addis Ababa Light Railway Transit (ALRT) that began operation one-and-a-half years ago. From the beginning, the government did not envisage profiting from operating the ALRT. Such projects in most countries are primarily intended to alleviate shortage of public transportation. This is also the case for the Addis Ababa LRT, which has played its part in addressing the city’s transportation challenges. For instance, it has transported 17.9 million commuters and collected 56 million birr from ticket sales within the past six months. Nonetheless, the ALRT has been incurring losses. According to the document, the corporation has lost 1.8 billion birr from the ALRT operation during the past one-and-a-half years. In addition to the loss, the corporation has started reimbursing the principal loan and interests it has borrowed from the EXIM Bank of China. Last July, it paid USD 28.9 million. Another USD 29.24 million is due the coming month. Apart from this, the corporation has started paying interests and commitment fees for the USD 2.5 billion loan obtained from China for the construction of the Addis Ababa-Djibouti railway corridor which is expected to begin operation as of May 2017. Similarly, it has commenced servicing interests and commitment fees for the USD 1.165 billion loan obtained from European banks facilitated by Credit Suisse for the Awash-Woldia-Mekele route.

In July 2016, the corporation paid USD 35.47 million and USD 18.73 million for the two loans, respectively.

Another round of debt servicing worth USD 96 million is due for the coming month. However the cash-on-hand category of the balance sheet shows nil and no alternative sources has been identified so far, according to the document.

Not only this, the corporation has been unable to secure the 60 billion birr budget it has approved for the ongoing Ethiopian fiscal year.

State Owned Enterprises Affairs Standing Committee of the House of People’s Representatives (HPR) summoned the ERC on Tuesday to report on its second quarter performance. Chief Executive Officer of ERC, Getachew Betru (PhD), was explicit in revealing the challenges of the debt burden and the financial challenges facing the corporation. Simultaneously, Getachew was bold and vocal in assuring the standing committee regarding the exit strategies. He admitted that 2017 would be a tough year for his agency.

“It is a debt-driven project from the beginning, and we know that such events will happen in due course,” the CEO told The Reporter, “what matters is the exit strategy,” he said.

According to another top official of ERC, the Addis Ababa-Djibouti route was very lucrative for anyone interested in investing in.

“We significantly reduce the external debt by transferring 40 percent of this route alone,” the official said. However, this required government approval on any of the alterative exit strategies.

1 thought on “Ethiopian Rail Corporation’s Debt: How Big Is It? – The Reporter

  1. This is a tell tell sign of a dying nation. corruption,huge population, lack of freedom, starvation, repressive regime, multi nations who have different culture and language. unemployment and located in hostile neighborhood with lots and lots of enemies. tick tock time is running out.

Leave a comment.

Your email address will not be published. Required fields are marked*

This site uses Akismet to reduce spam. Learn how your comment data is processed.