Ethiopia gets first foreign leasing company
Ethio Lease, a subsidiary of Africa Asset Finance Company Inc. (AAFC), a US-headquartered equipment finance firm, enters Ethiopian market.
The National Bank of Ethiopia granted a license to Ethio Lease, making it the first foreign-owned entity to receive a financial services license in the country. AAFC owns and operates a group of companies that provides asset backed lending (ABL) and leasing services throughout Africa.
Ethio Lease officially launched on August 8th, 2019, at the Sheraton hotel in Addis Ababa, in the presence of NBE Governor Dr. Yinager Dessie, the Minister of Finance Ahmed Shide, Ethio Lease board chairman Girma Wake, other key government officials and relevant stakeholders.
Dr. Yinager Dessie, Governor of the NBE stated, “Being the first company to provide equipment leasing services, Ethio Lease promises to be a game changer in Ethiopia. We believe this venture has a huge potential to boost the economy, while providing significant financial gains for the country.”
Ahmed Shide, Minister of Finance welcomed the first foreign-owned financial services company to Ethiopia, building on the promise Prime Minister Dr. Abiy Ahmed made at the World Economic Forum, in Davos, to open Ethiopia to foreign investment.
The leasing concept was introduced in Ethiopia to address equipment and forex shortages and provide easy access to needed equipment, thereby creating local jobs and increasing productivity. Ethio Lease will offer a wide range of leasing services for multiple sectors such as manufacturing, agriculture, healthcare, energy, food processing (including coffee), among others.
The US Ambassador Michael Raynor to Ethiopia in his statement stated, “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.”
Talking about the significance of the launch of Ethio Lease, Board Chairman of Ethio Lease Ato Girma Wake, said: “Leasing high-quality equipment could have a potentially transformative impact on Ethiopia because it allows companies to free up their liquidity and generate revenue without having to heavily invest in equipment first. A leasing agreement would also allow companies to pay for the equipment as it generates revenues for them.”
Ethio Lease offers long-term leases known as capital leases, which provide companies and individuals with lease contracts that cover the significant portion of the economic life of the purchased equipment. Depending on the equipment, Ethio Lease will ensure that companies that lease equipment adhere to proper operations, maintenance upkeep, health and safety, and adequate storage throughout the lease period.
When asked about how equipment leasing would benefit Ethiopians, Ethio Lease CEO, Ato Girum Tsegaye, reiterated: “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.” Unlike other companies, Ethio Lease does not have to queue for forex, as they will use their own funds from the parent company.
The company plans to provide leasing services to address equipment shortages in the healthcare, agriculture, food processing, energy and manufacturing sectors. The firm conducted a year-long feasibility study and market research in 2017 to determine areas of interest and understand the supply chain mechanisms, including considerations related to leasing equipment and the complex regulatory framework. Ethio Lease will own and oversee the maintenance including proper use of the equipment, throughout the lease period, providing the lessee with the option to buy the equipment from the company for the residual value, at the end of the lease period.
According to Ethio Lease Vice Chairman, Mr. Frans VanSchaik, equipment leasing is a trillion dollar market in the US alone with 70% of all equipment provided through equipment finance or leasing programs.
According to the latest Global Leasing Report by the White Clark Group, the Pan-African leasing market was estimated to be just USD 5.4 billion in 2015, while the International Finance Corporation (IFC) estimated the Pan-African market at USD 40 billion in 2017. AAFC believes the increased adoption of leasing will be economically transformative and accelerate the development of many African nations and companies.