Exporters increasingly in default

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Ethiopia has seen the volume and income from its exports decrease. Now the country is also experiencing contractual agreements being breached between exporters and those purchasing contracts from abroad. The Ministry of Trade and Industry reported 24 contracts in default last fiscal year. Some exporters claim that figure could actually be around 100 if the matter was studied more closely.
Most of the defaulted contracts involve cattle, pulses and sesame seeds and a majority of those on the receiving end are located in Saudi Arabia, India and Dubai.
There are 13 Ethiopian exporters who did not send agricultural products to places like Egypt, Israel, Oman, India, Singapore and Saudi Arabia as they promised.
Exporters say importers, import agents and bankers have defaulted, renegotiated, confirmed orders or even cancelled shipments and letters of credit or contracts without reason.
Prices have risen as a result of instability and scraping high-value currency notes which disrupts trading in the cash-oriented market.
Out of concern the Ministry is preparing a regulation about the issue. Haimanot Tibebu, Export, Research and Promotion Director at the Ministry told Capital that the draft regulation will decrease defaults.
“The problem is that some exporters are reluctant to fulfil agreements with receivers in destination countries. Some rely on the advance payments from the receivers but the receivers don’t want to pay until they get the product.” She went on to say that these defaults undermine Ethiopia’s credibility in the world and that the regulation is needed.
One exporter who did not give their name said contractual defaults occur primarily because of the high prices at the Ethiopia Commodity Exchange (ECX).
“Exporters are buying at high prices set everyday at ECX, they often lose money but compensate for this by importing other products with the hard currency they get from exporting. Then others are forced to breach the contracts they made with importers abroad because they can’t make profits on ECX prices. So the best solution is to drop the ECX transaction and to set the price based on buyer and supplier demand.”
In the past six months Ethiopia’s export revenue was 1.21 billion USD which was 750 million USD short of the government’s goal of USD 1.96 billion. Current challenges to Ethiopia’s exports come from instability, failure to increase productivity, reliance on raw agricultural commodities, contraband border trade and lack of meaningful diversification of export items in addition to lack of inputs for manufacturing companies due to the shortage of hard currency. Ethiopia’s major exports include coffee, oil seeds such as sesame, flower, Khat, fruits, vegetables, minerals and some manufactured goods. Ethiopia’s forex consuming import products include fuel, machines, medicines, steel, manufactured goods, foods and simple products such as, toothpicks, candies and cookies.