Local manufacturers to enjoy suppliers’ credit scheme

Eyob Tekalign (Photo: Anteneh Aklilu)

The controversial suppliers’ credit directive has been revised to include local manufacturers to access inputs on credit.
It is recalled that in October 2017, the National Bank of Ethiopia (NBE) and the Central Bank, amended the ‘external loan and supplier’s credit directive no. REF/05/2002’- which aimed to allow foreign investors to access foreign commodity credit with a guarantee from local commercial banks.
The 2002 directive had given the right to investors that contributed for the generation of hard currency like exporters to access foreign commodity on credit.
However, the amended directive has been aimed to incentivize the FDI to invest in the country and protect and encourage foreign investors, local manufacturers who are involved on similar investment had previously criticized the government’s decision calling it an apartheid law which excluded the locals.
Similarly, banks which have huge sum as a loan on local investors, have also ridiculed the amended directive since it is creating unfair competition between local and foreign investors that are engaged on similar industry.
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 pointing that they would be unable to collect their money from manufacturers who received large loans.
Besides that, investors and experts argued that the directive goes against the investment proclamation by stating 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.
They claimed that the proclamation indicated that it has not divided local and foreign investors in relation to acquiring external loans, while the central bank directive went against it.
“This is an apartheid law that only benefits foreigners at the cost of local investors,” they called the 2017 directive.
Meanwhile, in his latest press conference that covers the whole economic condition of the country, Eyob Tekalgn, State Minister of Finance (MoF), said the directive has been revised again on the aim to include Ethiopian manufacturers on the scheme.
“We have undertaken correction on the directive that is now on draft stage and will be ratified by board of directors of NBE for implementation,” he explained.
Eyob added that as per the revised directive, local manufacturers will be benefited on importing input and parts on credit scheme that is paid in six months by customers’ banks.
After the new information came from MoF, bankers appreciated the decision.
Asfaw Alemu, President of Dashen Bank, reminded that the access to foreign currency is very strange because of the shortage as a nation, due to that in order to attract the FDI to invest in the country and give room for banks to breath under the suppliers’ credit, the credit was stipulated to be settled in 180 days.
“I share the idea that the local manufacturers that are involved in import substitution should get similar support like foreign investors in that they may come up with foreign currency for investment and national images. At the same time the local manufacturers who transform from trading to industry, value addition, job creation, import substitution and changed their import dependent business to manufacturing should have get similar support as FDIs,” Asfaw told Capital.
He said that it is of great benefit for crucial industries that are also indebted at banks.
“The credit facility may benefit the manufacturers but the key issue is that the banks access for foreign currency that is supposed to be expanded because the suppliers’ credit also at the end of the day will be paid by foreign currency,” the President says adding that, “settlement capacity of banks should be also improved”.
In over four years past, the hard currency shortage has forced manufacturers to shrink their production or stop it altogether.
According to the latest report of MoF that evaluated the six months public sector debt, indicated that the suppliers’ credit stock stood at USD 1.62 billion, which is 5.45 percent of the total external debt.
So far, local manufacturers aresupposed to wait to get the foreign currency under letter of credit (LC) for their importation of spare parts and input, but the process takes several months to years. However, as per the permit from NBE, foreign industrialists are directly accessing huge sum of foreign currency without any delay from ordered banks.
There are also claims from the private sector that the FDI is engaged on illegal currency market to suck their dividend illegally.
Eyob said that he does not have information about the issue but he said that if there is such kind of activity it shows that the issue is not only solved by policy measures but also must take into account holistic market correction which requires implementing.
“If the FDI’s are involved on this activity, I would be surprised on the involvement of these big companies and their management of it. But anyway, it indicates that the market distortion is not only solve by controlling but also by holistic market correction which requires implementing,” he explained.
The inflation is mainly galloping by the price hike on food items that take 60 percent of the inflation basket.
Grain and edible oil has significant contribution for food items inflation. “Until the problem is fully alleviated by higher productivity, restructuring the market structure would be vital,” the State Minister said.
He said that basic needs will be imported and some of them like wheat are being imported besides using the biggest public enterprises structures like Ethiopian Trading Businesses Corporation to be involved on the retail trading to calm the market as per the scheme of immediate solution.
The macroeconomic team and relevant government bodies like Ministry of Trade and Industry are evaluating the latest price hike in the market to come up with concrete solution.
He hinted that the market structure is the challenge for the price hike and he argued that the government will correct it on different measures.
He said that the government is responsible to mitigate the inflationary behavior, while at the market structure there are illegal actions and sabotages.
He argued that the frequent devaluation would not have significant effect on the price increment and shows that the major inflation is come from food items like teff, corn, meat, barley, oil, potato, onion milk, pepper and others, “This indicated that the problem is correlated with production and productivity than devaluation. That is why we are working aggressively to increase productivity on mechanized agriculture for fundamental solution for price stability.”
In terms of banks liquidity, it has expanded significantly boosting up to 25 percent increment, Eyob said. He added that because they are highly liquid, they are involved on the treasury bills market.
The latest government measures to impose on limitation on cash withdrawal, cash on hand and monetization, the banks liquidity has climbed and narrowed currency outside banks to 64 billion birr as per the end of the first quarter of the 2020/21 from 109 billion birr at the end of the last financial year.
The State Minister has hinted that the capital market will commence in the coming fiscal year. The proclamation to form the capital is at the parliament for ratification.
He said that technical speaking works are practically started in terms of training those who will be involved on the market and selecting the required technology.
Regarding the market based foreign exchange; the State Minister said that it is part of the three year economic correction, ‘Home Grown Economic Reform Agenda’. “It will take its path, there is no reason to rush to implement it,” he said, while Prime Minister Abiy Ahmed hinted that it will be put in place at the beginning of the coming year.