The National Bank of Ethiopia (NBE) is evaluating the amended directive FXD/47/2017 which addresses external loans and supplier’s credit, Capital learned.
The directive amended the 2002 ‘external loan and supplier’s credit directive no. REF/05/2002’ which allowed foreign investors to access foreign commodity credit with a guarantee from local commercial banks. The law was applied as of October 2017. It has been criticized by local investors engaged in import substitution and heavy industries. The financial leaders and experts have also expressed their concern that it may pressure them to settle the credit as opposed to allocating foreign currency on a letter of credit basis. At the same time banks expressed anxiety that they would be unable to collect their money from manufacturers who received large loans. In the past two years the hard currency shortage has forced manufacturers to shrink their production or stop it altogether.
Experts are arguing that the directive goes against the investment proclamation.
Legal experts argued that the 769/2012 investment proclamation erroneously mentioned on the central bank directive FXD/47/2017 as ‘679/2012’ on its part one article 2/4 stated that investor means a domestic or a foreign investor that invested in Ethiopia.
“The proclamation indicated that it has not divided local and foreign investors in relation to acquiring external loans,” a business consultant said, “but they claim the central bank directive went against it.”
“This is an apartheid law that only benefits foreigners at the cost of local investors,” one of the legal experts explained.
This was one of the top issues in discussions held at the central bank last week between leaders of the central bank and financial firms.
Bankers said that the suppliers’ credit scheme not only affects local investors but the financial institutions themselves because there is a risk their clients may default.
“When the banks secure hard currency they focus on settling the credit rather than approving the LC for other clients who are not included in the supplier’s credit scheme, which is also another effect on local investors,” bankers told Capital, “this system has also forced the local producers to be excluded from the market and suffer from bankruptcy due to several expenses including overhead cost and salary for employees that are difficult to avoid”.
“The suppliers credit issue was mentioned in the meeting and we have also asked about the legality of the directive when comparing it with the investment proclamation,” one of the participants at the meeting told Capital.
However sources who attended the meeting told Capital that any response regarding the supplier’s credit was not given by the governor.
Meanwhile sources said that the central bank is looking at the directive to see what to revise. Sources said that the governor ordered experts to revise it, however Capital was unable to confirm it from Yinager Dessie (PhD).
Investors that Capital talked to said that they are not against facilitating credit for FDI’s since it is one of the ways to attract new investors. “We are claiming that the law should consider the reality,” an investor who asked to be anonymous said.
They said that if they partly or fully sold their factories to foreigners the factory may be allowed to import input via the supplier’s credit scheme. “We are asking this, why did the government force local investors out from the manufacturing sector using these kinds of tactics. However, at the same time the government pushed the local business community to get involved in the manufacturing business as opposed to focusing on importing finished goods and wholesale trading,” they claimed.
According to manufacturers, currently several businesses like heavy industries in the chemical, metal and some food and beverage and garment companies owned by local investors are up for sale because they are unable to run their usual operation and at the same time the bank loans have to be paid.
When local investors, who have thousands of employees, layoff their workers, it will also affect the social structure, according to experts.