Capital lease finance company opens shop
Ethio Lease to import USD 200 million worth of machineries
The National Bank of Ethiopia (NBE) has licensed the first foreign capital lease finance company called Ethio Lease.
Ethio Lease was established by African Asset Finance Company, a New York City-based finance company, with a registered capital of 400 million birr. The company plans to provide leasing services to address equipment shortages in the agriculture, healthcare, and manufacturing sectors.
Ethio Lease, which was launched on Thursday at the Sheraton Hotel here in Addis Ababa, has become the first foreign company to venture into the capital lease sector in Ethiopia. The company has nine shareholders and seven board members including Girma Wake, former CEO of Ethiopian Airlines and former board chairman of RwandAir, and Gabriel Negatu, director general for Eastern Africa Regional Center at the African Development Bank.
In his opening remark, Girma Wake, board chairman of Ethio Lease, said that the company would provide a new type of business for Ethiopia. Girma said Ethio Lease will bring agricultural machineries like tractors and harvesters and lease it to farmers. “We will enable our farmers to move from Oxen driven thing to sophisticated agricultural equipment that would increase productivity,” he said.
Ethio Lease would import and lease medical equipment such as MRI and City Scan to hospitals. “Many new hospitals have been opened in the last ten years. But a few of them have adequate medical equipment. We will provide them with the required medical equipment that would help them improve the medical facility and cater the medical need of the country,” Girma said.
Ethio Lease also plans to provide modern equipment for the manufacturing and hospitality sectors. According to Girma, at a time when Ethiopia is liberalizing its telecom sector Ethio Lease will supply telecom technologies such as telephone towers. “We will build and lease data centers to the telecom companies. They should not bring everything,” he said. “You can lease it and at the end you can own it,” he added.
The Ethiopian government first enacted the law that allows foreign companies to engage in the lease finance sector in 1998. The proclamation was revised in 2013. However, no foreign firm has joined the sector until Ethio lease submitted its application at NBE and the Ethiopian Investment Commission.
The Ethiopian Investment Commissioner Abebe Abebayehu said that Ethiopia can use Ethio Lease’s project to advance the job creation agenda. “By availing equipment through lease finance we can also enhance agricultural productivity. Through the lease finance we can address one of the critical constraints the private sector has been suffering for so long – access to finance,” Abebe said. The commissioner assured the investors that his commission will address some regulatory and bureaucratic hurdles.
The US Ambassador to Ethiopia Michael Raynor stated that Ethio Lease offers a high quality investment to Ethiopia. “Ethio Lease represents an amazing opportunity – tens of millions of dollars of American capital; the latest in manufacturing, agriculture, and construction equipment technology; and a sustainable financial model that unleashes the potential of Ethiopian businesses, without adding to Ethiopia’s debt burden. This is a prime example of how the United States invests in Ethiopia,” Raynor said.
“This event represents a big step forward in Ethiopia’s economic reform and growth effort. The US government is greatly encouraged by the steps Ethiopia is taking to liberalise its financial service sector and promote sustainable economic growth. The milestone that we are celebrating today is an important part of that journey. The US remains committed to supporting Ethiopia’s economic reform,” he added.
According to Raynor American companies promote high labor standards, fair wages, responsible environment practices, knowledge and technology transfer and human capital development. “I am proud to say the US private investment activity comes at the top when it comes to win-win investment,” he said.
The ambassador noted that Ethio Lease will import modern agricultural and construction machineries from America’s top-quality companies such as John Deere and Caterpillar.
Governor of NBE Yinager Dessie (PhD) said the main reason the government allowed foreign investors engage in lease financing to support the development of the manufacturing sector. “I consider the launch of Ethio lease capital goods financing company a milestone for creating additional enabling environment opportunities for small and medium enterprises. Ethio Lease will play a significant role in enhancing the financial sector by providing much needed resource through capital goods financing to Ethiopian,” Yinager said.
Officials of Ethio Lease disclosed that the company would not require additional collateral for the equipment they would lease to customers. Ethio Lease CEO Girum Tsegaye said unlike other financial institutions Ethio Lease would not request collateral. In stead the equipment itself would be the collateral. “The main advantage of leasing for Ethiopians is that Ethio Lease will acquire the equipment in foreign currency and provide companies with the equipment they need to conduct their business operations using the local currency. We will simply charge companies a monthly lease fee, which will be combined with the fees for insurance and maintenance agreement of the leased equipment.” Girum told The Reporter that Ethio Lease would not take loans or any other funding from local sources. He said that the company plans to import equipment worth 200 million USD in the next two years.
The company started its operation with 14 million USD but according to company executives they would increase the capital significantly. During the launch ceremony three local companies engaged in the manufacturing, health and agriculture sectors signed memorandum of understanding with Ethio Lease. SBG, Arki bottled water producer, Arsho Medical Laboratory and an individual engaged in farming in Arsi zone are the potential lease who signed the MoU to work with Ethio Lease.