Institute blasts banks that allocate foreign currency for import of steel

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Metals Industry Development Institute (MIDI), blasts on banks that allocate huge amount of foreign currency for import of finished products and recommends the involvement of Ministry of Trade and Industry (MoTI) on the letter of credit (LC) approvals.
The institute has also expressed its disappointment on public enterprises and offices who favored the import of finished products than using local products, which is supported by different government policies.
Tilahun Abay, Planning and Information Management Directorate Director at MIDI, said that the government policy and National Bank of Ethiopia (NBE) has clearly stated that the priorities for local investment on the foreign currency allocation.
He said that it is confusing that meanwhile the country has created ample capacity on rebar industry and fast growing is observed at the engineering sector, to import finished products is the major foreign currency spender.
The sector experts that Capital interviewed said that the import priority is given for medicine, oil and food items at first place and followed by strategic sector like manufacturing industry but at the ground the reality is totally different.
Tilahun supported the claim of the sector actors and said that the central bank directive clearly stated that industries have priority than traders for access to foreign currency.
“Lack of access to foreign currency has become another burden for manufacturers who employs massive jobs.”
“According to the information we secured from Ethiopian Customs Commission (ECC) the import of finished goods with raw material is incomparable,” he added.
“The information shows that the manufacturing sector is totally neglected from access to foreign currency despite the country’s policy and direction that supports it on paper,” he expressed his frustration.
He accused the public enterprises and offices who are importing finished goods; meanwhile the goods can be easily manufactured locally.
Finished goods importers including public enterprises are openly accessing foreign currency from banks to import finished goods that are available in the local industry, who are working with about 5 percent of their capacity.
“Local steel industries like bar manufacturers run less than five percent of their capacity due to that they cannot get foreign currency to import raw material like billet for their production,” he said.
“In the first 11 months of the past budget year 775,415 metric ton of rebar worth USD 334.2 million was imported.”
He said that foreign currency allocated at the stated period for the import of billet, which is an input of rebar, was USD 186.7 million for the import of 372 thousand metric ton of billet, “it shows how the local industry is totally neglected from the foreign currency allocation, meanwhile the local production capacity for rebar is at 5.5 million metric ton per annum.”
“We are really disappointed by public offices, which import rebar, than support local industries, which is a key sector for any country’s development,” he expressed his grievance.
Even though Tilahun did not mention the public enterprises or other offices, one of them is Ethiopian Construction Works Corporation (ECWC) that procured 15,400 metric ton of rebar at the cost of USD 8.5 million recently.
The sector experts argued that procurement of ECWC is not only importing finished goods but it has big price difference from local market.
“The corporation bought a kilogram of rebar by 43 birr that it can get by 36 birr from local manufacturers,” a sector actor says “they paid highly exaggerated price for the import of rebar.”
If the foreign currency allocated for ECWC was given to local manufacturers to import billet they can produce 23,400 metric ton of rebar that will come to an additional 8,000 metric tons besides creating job opportunities.
According to the sector observers besides giving high price the importing process cost the country huge amount for demurrage.
“As the sector actor I estimated that the corporation rebars import costs up to USD 5 million because of extra payment and port demurrage,” a sector expert who demands anonymity explained.
He insisted that the government should re consider its strategy on the import of such huge amount of commodities that consumed the scares hard currency.
Tilahun reminded that in the past public enterprises and government offices have imported steel products for the housing scheme and other projects.
He argued that the government policy force public organizations to give priority for products that are available locally before they look to foreign suppliers.
“We consider the problem is at banks when they allocate letter of credit (LC). As per the direction we have given the list of the industries and their foreign currency demand for MoTI, which is the higher body of MIDI, that transferred the documents for bank,” he explained.
According to the director, the initial problem is lack of transparency at banks, which are not interested to provide a detailed report of their foreign currency approval, “it shows that there is lack of transparency and misbehavior at the financial industry.”
“According to NBE directive after priority import items like petroleum and medicine strategic sectors should get attention but it is not done at the ground,” the sector experts said.
Currently MIDI is undertaking a study that will be tabled for relevant government body to tackle the challenge.