Almost 94 percent of foreign currency allocated to private investors since the beginning of the budget year has gone to foreign companies. Only six percent was transferred to local investors.
The government stated it provided USD five billion to the private sector mainly to import priority products and input for the manufacturing industry. People working in the sector told Capital that over the last year almost all hard currency has gone to foreign investors.
They said that foreign companies here in Ethiopia are benefiting from a separate scheme called the suppliers’ credit condition which was previously allowed for companies engaged in hard currency earnings or exports. Since early last budget year the National Bank of Ethiopia (NBE), has amended the suppliers’ credit directive and allowed foreign investors to be a beneficiary through the credit import of inputs or spare parts for their production here.
Since the directive amended that allowed investors to access guarantee to import products that the payment will be settled in 180 days, they can access hard currency more easily than other local investors, even though they might be engaged in similar investments. Local investors have claimed that the law discriminates against local investors and makes them to wait in a long line for a letter of credit (LC) to access foreign currency for their import, meanwhile they produce similar products.
Last week the government announced that it has made available USD 300 million for the manufacturing sector, which is done almost for the first time in the budget year. “the government stated that it has provided USD 5 billion in the stated period but the local investors got almost nothing, which indicate that almost 94 percent of the total foreign currency dispersed in the past nine or more months is disbursed for foreign investors,” experts in the industry sector claimed.
They complained that the situation pushed them to halt their production. “We are confused that the government may want local investors to be distributer of the products that foreign companies produce here,” they added.
The investors who called the directive as ‘apartheid law’ argued that the law is against the investment proclamation, however NBE officials downs the claim.
During his meeting with the media a few months ago Yinager Dessie, Governor of NBE, said that the government will continue providing foreign currency for international investors via the suppliers’ credit scheme despite the concerns of local investors.
On the other hand the sector actors claimed that the scheme by itself is vulnerable to misdemeanors since the approval is giving separately. “This kind of scheme may highly aligned with corruption,” they said.
Currently there are long queues at banks for LC, since the demand of hard currency does not meet the supply. Experts at banks told Capital that speculators are major challenges for the long line that most of them open LC in different banks. They added that those who really don’t want the foreign currency are engaged in selling their turn to those who want it badly on a commission basis. They recommended that the government shall introduce a new scheme at least to solve the problem and ease the line.
They said that settling some amount of the money as a guarantee that LC demands is genuine or not shall solve the problem. “Putting some money when LC is opened at the banks may only attract real foreign currency seekers and they shall only engage on the process than speculators,” they recommended.
“But the initial solution shall be allowing local investors to be part of the suppliers’ credit scheme like foreign investors. We support providing suppliers’ credit for foreign manufacturers since they have to have smooth operation but the law should not neglect locals,” they added.
Experts explained that currently foreign industries undertake their normal production with economic scale of operation cost, while local industries that produce similar products have battling on high cost of production due to under capacity operation.
“It has also make the foreign companies to handle huge liquidity that lead them to involve on illegal exchange to transfer their earnings to their home country than waiting long line to convert their local currency to foreign currency and send it to home country,” experts said.
Last week the government disbursed USD 200 million via Commercial Bank of Ethiopia and USD 100 million by the rest 16 private banks, which is for the first time disbursing foreign currency via private banks.
Experts said that the amount is very insignificant when disbursed for every private banks. Bankers that Capital interviewed said that even though the volume is very limited the gesture dispersing foreign currency via private banks is good.
However bankers claimed that the difference between local and foreign companies in accessing foreign currency is unfair. “We provide the companies who come with the approval of NBE to access suppliers’ credit but all of them are foreign companies. But local investors who are our customers are expected to wait a long time,” one banker said.