The government has announced to include local manufacturers under the suppliers’ credit scheme to access foreign currency for their production, however, experts express that it may not be as helpful in comparison to foreign investors benefits of the past.
Last fortnight, Eyob Tekalign, State Minister of Finance, told media that the suppliers’ credit directive of the National Bank of Ethiopia (NBE), external loan and supplier’s credit directive that was amended in 2017 was re-amended to include local manufacturers to access hard currency on credit for their raw material and accessories input.
When the directive was amended in October 2017, the Central Bank included foreign investors to benefit from the credit import of input and machineries or parts besides exporters, who contributed to generate foreign currency.
Since then, local manufacturers, who engaged on the produce of import substitution products and similar products that foreign investors produce, expressed their grievance by stating that the directive forced them to halt their production whilst making them incompetent with those who have the chance to benefit from the suppliers’ credit.
In the past three and half years, the local manufacturers have been accessing the foreign currency under letter of credit (LC), which takes several months or years to get a permit from banks.
However, recently the government has decided to include the local investors on the suppliers’ credit directive in order to benefit the foreign currency for their production. However, the manufacturing sector leaders and bankers have expressed their concern that the government’s decision might not touch the ground.
They argued that the resource is not available like the previous period.
A bank president who demands anonymity said that the amendment of the directive, which is waiting NBE board of directors’ approval, is an appreciable decision. “But it is difficult to say that the investors will get benefit as the foreign investors,” he expressed his expectation.
He reminded that the scheme is giving an opportunity for the manufacturers to import input on credit that is supposed to be paid in 180 days’ time by local banks. “While banks are still required to generate ample foreign currency for the credit settlement within the sated period, it remains burdensome during this period,” he elaborated.
Other bankers argued that at under the current circumstance the hard currency earning is dire than the trend in the past few years.
“The government considered to include local producers at the time where the resource is not there,” both bankers and manufacturers claimed.
Under the suppliers’ credit directive, banks are responsible to give a permit for investors to import requirement items when NBE approved the request and order banks to give a permit.
However, now banks argue that the permit shall only have life if the banks have viable foreign currency generations, which is difficult to determine at this stage. “At the end of the day, banks are supposed to settle that credit but the question is that from where they will play,” one of the biggest banks president told Capital expressing his suspicion on the effectiveness of the under amendment directive.
Recent Developments
National Bank of Ethiopia (NBE) is aggressively approving suppliers’ credit for foreign investors, financial sectors leaders revealed.
It is to be recalled that the government determined to include foreign direct investors (FDI) since October 2017 on access to hard currency on the suppliers’ credit scheme besides the traditional, that is, those, who contributed for the generation of foreign currency like exporters.
Since then, the FDI had benefited from the scheme besides securing foreign currency on the letter of credit (LC) like other businesses who use it to import input, accessories, goods and other materials for their business in the country whether manufacturing industry or the service sector including trade.
According to sources in the banking industry, in the past couple of weeks the number of approval letter for accessing via suppliers’ credit has increased.
They said that the number of FDI that secured approval from NBE for dollar or other major hard currencies has increased. Capital had also got a chance to view some of the approval letter copies that was sent to banks ordering them to allocate the foreign currency for the FDIs.
Sources said that the foreign investors are getting millions of dollar under the approval of NBE for the import of raw material or accessories and machineries. They said that a single company may get about USD 10 million under the approval of NBE at a single bank.
“We are not aware why the frequency increased this time around,” one of the bank leaders, who demands anonymity, told Capital.
The benefit of the suppliers’ credit scheme is that the foreign companies shall get the foreign currency without delay since they secured the approval from NBE, while other investors like Ethiopians, who may be involved on the same investment as FDI, would wait for the LC for months or years as per the rule of NBE.
An Ethiopian investor who is aware of the latest activity of NBE regarding the suppliers’ credit claimed that case is only decided by NBE leadership, which he argued may have some sort of interest.
He expressed his concern that the recent swift move of approving suppliers’ credit is coming following the information that the government would on the process include other manufacturers to be part of the scheme.
Banks leaders have also said that they cannot refuse the order of NBE, a regulatory body, for giving the foreign currency under suppliers’ credit.
Bankers said that under the scheme a single company shall get huge amount of foreign currency from different banks at the same time.