Welcome to the 92nd edition of ፍራንክ Digest!

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White Collar Crime: Can Finance Be Used for Evil?

Investing

Yes. Yes it can.

But we have an article to write, አይደል? So let’s get to it:

Ethiopia established the Deposit Insurance Fund a little over a year ago now. 

The goal: protect your cash deposit at any bank (up to ETB 100,000). Money can be stolen or the bank can fail → we’ve yet to see that last scenario pan out in the land of origins but who says you can’t put flood insurance on a hut in the Sahara. 

Message: you can never be too safe 🤷‍♀️.

Having said that, financial markets and business environments in Ethiopia are twin babies sucking on pacifiers, rolling around in diapers pushing on the hard wood rails of their cribs. They are both in their infancies so sophisticated scams are not typically on the menu.

But if that image represents a rowdy Saturday afternoon for you (you are a parent and enjoying the chaotic life), then you are old enough to know that during your lifetime, very few have seen the insides of a prison cell because of financial misconduct. Ethiopia’s weak financial environment lacks transparency and accountability until…investors get antsy and even then, the legal framework isn’t there to take the necessary steps of getting your money back.

The dictionary definition of a financial crime is any activity that allows an individual or group to unlawfully gain financial assets (including money, securities, or other property)

For a financial activity to be considered as a crime, it typically has to involve a large amount of money, where the unlawful gains tend to be obvious and affect a large list of people. 

Take Bernie Madoff’s $65B scandal for instance. 

Bernie promised ‘attractive’ returns to some of the wealthiest and most elite. Those returns were nothing more of new investor money paying out old investors, a.k.a, a Ponzi Scheme. It’s one of the oldest tricks in the books yet the world still falls for it.

So you might ask, anything similar in Ethiopia? Well Ponzi gives the illusion that money is being created through smart investment. Most scandals involving money happen in the real estate space, where a collective pool is pulled together with a promise of acquiring an asset. 

Access Real Estate is one of those examples.

The company collected around ETB 1.3B with the promise of building residential housing for around 2,500 home buyers. The ‘real’ in Access Real Estate was actually a mirage and audit reports revealed payouts and loans to different individuals and contractors, with no work to be shown for it.

Needless to say, investors were left holding the bag. 

Yet, despite losses of hundreds of millions of Birr, Access is still holding its head above water, carefully tip towing on a fast sinking piece of plywood that represents its few shareholders that are holding on to the slight glimmer of hope.

Similar stories echo through the real estate sector, Purpose Black is another. Accounts frozen, executives arrested and lawsuits pending.

Hello Taxi was recently implicated in a similar scandal, where the company promised vehicle ownership in exchange for small advances. The vehicles never turned up, with police putting the brakes on operations.

So what does this tell us? If an investment sounds too good to be true. Then it is. Just because Ato Sisay, your trusted uncle who owns properties, has invested doesn't mean that you have complete conviction on the investment. 

Read the prospectus. Have a lawyer? Send them a copy. Are you impulsive about quick returns, get yourself to therapy.

Better to deal with those emotions first hand then to end up knocking at the scamming company’s CEOs office door shouting “በዚህ ዓለም ሆነ በሚቀጥለው, I will get my money back!”

But let’s not end this on a somber note. These are just a few examples, remember a batch containing one bad apple 🍎 can ruin the whole thing. We’re simply saying, avoid the bad apple and focus on the rest.

Investments are risky. No matter what the brochure says. 

Ethiopia has seen its fair share of financial scams, most involving the real estate sector. The promise of a bigger payout is always the allure for any investor, give away your money and it will come back better, stronger, usually with an asset in your name.

As the country moves toward a more sophisticated financial system, the opportunities of getting caught in riskier and more complex scams will be high.

The message here is take a prudent approach when considering giving away your hard earned money. Make sure you understand the investment and ask for milestone based deposits. And spread your money on different investments, with a higher allocation on those your understand and see a greater return on.

Hedge against those with smaller bets to give yourself some room. And pray to Warren Buffet…just for good measure 😉

ፍራንክ Picks 

🚶🏽 Event: TenDX Summit Focused on Digital Banking [Feb 03 @ Sheraton]

🗞️ In the news: Securities Exchange Welcomes Two Newest Members

♟️ Innovation: RingCloud delivers call center solutions for Ethiopia

Speaking of Financial Crimes

Economy

The last article ended on a note about confidence, accountability, and how easy it is for money to leave the room through financial crimes.

So naturally, the next headline is this: Ethiopia wants to start printing its own money.

What could possibly go wrong?!

For decades, Ethiopia’s banknotes have been printed abroad by specialist security printers, most notably De La Rue in the UK. These are firms whose entire business model is basically “Do NOT mess this up!”

Most countries outsource for a reason; printing money is no side hustle.

Now Ethiopia wants to bring that operation home.
So far, so sovereign.

Here’s where it gets weird.

Nope, not Central ማተሚያ ቤት. Nope, not the National Bank of Ethiopia.

The project is being driven by Ethiopian Investment Holdings (EIH).

If that name sounds vague, here’s an introduction. EIH is the government’s mega-holding company. It sits on top of some of the biggest state-owned firms in the country. Ethiopian Airlines. Ethio Telecom. Commercial Bank of Ethiopia. Ethiopian Electric Power. Basically, the usual suspects, plus another 40+ of the biggest state-owned enterprises (SOEs).

These companies have two things in common:

State-owned debt is enormous, especially at the Commercial Bank of Ethiopia (CBE).

In plain english: the government issued bonds nearly as big as Ethiopia’s federal budget to bail out the country’s largest bank because it lent hundreds of billions of birr to state entities that aren’t repaying. The National Bank itself warned “overexposure to projects run by public sector organizations has put the bank under stress” in its financial stability report.

And now the same EIH umbrella that owns & runs all these money-hungry giants is getting closer to the currency printing machine.

Do you see the issue? No? 👇

“Printing currency locally” can very easily be heard as “printing more currency.” If Ethiopia ever started printing money to quietly cover SOE debts, here’s what happens:

→ inflation jumps
→ the birr weakens
→ people rush into dollars and assets
→ prices rise faster
→ trust collapses
→ nervous markets do nervous things

That’s not theory. That’s Monetary Economics 101.

You don’t need corruption. You only need pressure and a printing press within arm’s reach. Preferably run by your parent company (EIH).

Printing currency is tightly linked to monetary policy discipline and discipline.

That’s why, globally, central banks either:

They do not hand it to investment holding companies whose job is to grow assets, expand balance sheets, and “unlock value.”

Putting money printing under an investment arm running the biggest SOEs that don’t pay their debts creates probably the loudest conflict of interest you could imagine.

When notes are printed abroad:

When notes are printed at home:

This is not about trucks of cash disappearing. It’s about small, boring failures compounding quietly. Those are the most Ethiopian-economy-appropriate kind.

Printing the birr at home is not the problem.

Putting the project under a state investment holding stuffed with debt-heavy giants, instead of the central bank, is…not a bright choice.

Money printing works best when it is boring, insulated and aggressively unsexy

The moment it starts sharing oxygen with bottom-line ambitions, you’ve turned a monetary tool into a governance experiment.

And Ethiopia has done enough experiments.

Money is trust.
Printing it is power.

Mix that with conflicting incentives, and suddenly the risk goes beyond counterfeiting.

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