Wednesday, June 12, 2024

Contraband, tax evasion, Forex addressed in meeting between private and financial sectors


The private sector has blasted the economic challenges in the financial sector during a meeting with leaders of the National Bank of Ethiopia (NBE).
At the meeting that the Ethiopian Chamber of Commerce and Sectoral Association (ECCSA) and NBE organized on Wednesday the private sector delivered its claim via Chamber president Melaku Ezezew.
Private businesspeople mainly the manufacturing and service industries described how difficult the hard currency shortage is for them.
Melaku addressed other challenges too such as the under invoice practice and the black market. He says the illegal trading practices have expanded. “Issuing receipts with a lower amount than the actual transaction pressures buyers and cheats the country out of tax revenue,” he said.

The hard currency shortage has forced producers to cut their production. Some are waiting up to a year for hard currency to import spare parts worth less than USD 1,000.
Some exporters who only want to obtain foreign currency are abusing the market by collecting major export items like coffee and sesame at a high price and selling them at a lower price or even a loss. “The central bank is familiar with this activity,” Melaku said accusing the Central Bank of not being proactive in stopping it.
He also explained that the contraband market severely affects hard currency earnings. “For instance in the 2016/17 budget year the country exported 750,000 livestock, while Djibouti and Somalia who are receiving Ethiopian livestock along the border area via contraband have exported seven million livestock during a similar period,” he said.
He complained that the country imports USD 1.6 billion worth of wheat and USD 650 million worth of edible oil which could instead be produced locally.
Local investors also amplified that the suppliers’ credit scheme introduced early the past budget year for Foreign Direct Investment, excluded local investors, who were working on import substitution.
“For us the only option for foreign currency is a Letter of Credit, while Foreign Direct Investment and exporters are favored against the government policy,” investors complained.
The chamber president suggested that more alternatives besides Letters of Credit and Suppliers’ Credit should be available for accessing hard currency.
Some investors felt that the Development Bank of Ethiopia was unfair when it came to serving businesspeople. “We have seen agricultural investors access finance easily even though the government stated is prioritizing the manufacturing industry. However, we were unable to obtain a loan from the policy bank,” one participant said.
Leaders in the manufacturing industry said private banks lack any real power since they are controlled by the Central Bank. They recommended that the government order leaders of banks to give priority to manufacturers when they want to import spare parts worth thousands of USD without consulting NBE or having to get a waiver from the central bank. “You have to give a limited mandate to the banks,” one of the participants added.
The business owners strongly argued that private banks are misusing the first come first serve scheme because they are giving priority to people importing end products and luxury commodities like whiskey and cosmetics as opposed to raw materials and medicine. The participants suggested opening up the market to foreign banks and starting a secondary market. Others also suggested that citizens be allowed to have a foreign currency account like Kenya has. Some also criticized the role of the Central Bank, which they said was unclear.
Manufacturing industry representatives asked the government to find ways to extend debt payments because manufacturing has been hindered by lack of inputs due to the shortage of hard currency.
The meeting was chaired by Yinager Dessie (PhD), who was recently assigned governor of NBE. He said the Central Bank will be reformed but said the private sector must help by following the law.
“The private sector has to avoid illegal acts,” he said.  “There is misbehavior with regard to imports and exports; support us and we will support you,” he admonished.
In his response he addressed several of their issues recognizing that there is a challenge with under invoicing.
“We know who the affiliated company in China or Dubai is,” he warned.
He recalled that the Central Bank started to work with the Ethiopian Revenue and Customs Authority in the import business and Letter of Credit approval. In the beginning of the past budget year NBE forced banks to approve a Letter of Credit equivalent to the price of the import items.
He hinted that NBE would establish an intelligence element to control illegal activity in the sector in addition to the banking supervision division, which controls the banking sector and gave hope that the government may consider the debt payment reschedule request. They have also studied a secondary market and plan to establish one in the future.
Yinager said the government is studying how to stop the contraband trade, claiming that there are groups trying to gag the economy.
“The government will prosecute people trying to mess with the economy and trading in contraband,” he warned.

Read more