Heavy industries ask for debt, interest relief as forex crisis continues

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Private companies working in heavy industry and other major investments are asking the government to consider facilitating interest relief and settling debt extensions for loans they previously took.
Heavy industry investors that Capital contacted stated that for the last year they have not been able to obtain hard currency to import raw materials and spare parts for their operations which has negatively affected their production.
An investor, who on conditions of anonymity, said his company has over 2,000 employees, but their production is not as good as in the past and they have not been able to get foreign currency to import material to produce one of the major materials for the development projects in the country.
Experts in the heavy industry sector claim that the scarcity of hard currency has forced the prices of some products to skyrocket.
“If you see the steel industry, which is one of the fastest growing sector by adding some local and FDI investors, is suffering from lack of foreign currency,” an expert on the steel industry said.
The sector demands significant amount of hard currency to import a portion of billet but it has never secured LC in the past year, according to a sector expert. This causes the sector actors to limit their operation.
Recently it has been reported that the pharmaceutical sector is suffering from a hard currency shortage. This indicates the country is in a severe hard currency crunch, according to experts.
“Such kind of light industry is not expected to lose hard currency,” an expert in the pharmaceutical sector said. He argued that the pharmaceutical industry would be satisfied with a few million USD and didn’t require more than USD 30 million.
“But the manufacturers are claiming that they are suffering from the hard currency,” he said. He added that it shows that how the country is suffering from a lack of hard currency that does not even cover the demand of light but crucial areas.
For the heavy industries that experts estimated for over 150 companies the hard currency demand would be in hundreds millions of dollars. “If you look for the major steel industry there may be 40 companies, but their hard currency demand for a single year would be in billions of dollars,
“This would not be sufficient for the factories to operate in full capacity,” an expert on the steel industry who wanted anonymity told Capital.
The expert claimed that most of the steel industry is running at one third of its capacity, but recently its actual production has been significantly smashed.
The private sector also argued that even though they borrowed a huge amount of money to expand their business and manage the day to day operation the current political instability particularly in
Oromia region, which is the major destination, particular the surrounding of Addis Ababa, for heavy industries in the country has been affected in addition to the problems they are having obtaining inputs.
In the last two years frequent boycotts and unrest has been observed in the region which they say has affected their production. “We have also observed the problem in the factory compounds,” the private sector actors engaged in heavy industry said. They claimed that they manage more than 1,000 employees, while some of them have up to 3,000 workers.
“The shortage of hard currency and the unrest has affected our revenue,” the private sector actors claimed.
They are concerned with the burden of debt. “Most of every heavy industry investment has borrowed a significant amount of money for their operation,” an expert said. “It can be seen that a single company borrows hundreds of millions of birr from banks,” the expert added.
The current business slowdown has affected the debt settlement schedule for the companies, according to sources in the industry.
They want the government to reschedule the payment of their credit, otherwise it will backfire on the sector and the country’s economy, since they have a huge amount of capital and work force.
“We do not have the revenue we expected and this has directly affected our cash flow so we are unable to pay back our credit,” a heavy industry actor said.
“If the company does not have raw material it is clear that it does not have work,” a factory owner said.
Peace is the country’s priority, while the rest is secondary but currently the question is that the youth and educated groups are looking for work that must be filled by the private sector, according to experts. The hard currency shortage is the challenge for the sector experts said. “The past one year is a challenging time for the private sector. At least the interest rate on loans should be minimized,” an industry actor said.
“Companies secured loans and deposited the money to banks until they can get hard currency, but we are paying interest for the loans for one year without using the finance,” he said.
He insisted that the government get involved in the issue to find a solution at least to minimize the interest rate, which is currently over 19 percent on private and over 10 percent on the two state owned banks.
Ethiopia has been expanding its manufacturing industry that it wants to make it the major source of the economy. According to the government policy, the heavy industry is one of the major areas that the government plans to boost in the current Growth and Transformation Plan (GTP II).
Tadesse Haile, Special Advisor to the Prime Minister in the industry sector, told Capital that the issue has to be answered by National Bank of Ethiopia (NBE).
He said that the central bank and other private and public financial institutions are appropriate bodies to handle the case.
“The hard currency shortage is a real effect in the country, but it is natural since our development demands huge amount of foreign currency,” Tadesse said.
Most of the developmental projects are demanding hard currency, which is the major source of finance for projects since most of the inputs are imported, according to the PM advisor.
Tadesse, who mainly follows the textile and leather sector, said that the textile and leather are also sources of hard currency generation and has to get foreign currency since they generate it.
“We are supporting these sectors to get priority from the financial institutions, while sometimes they face challenges in terms of accessing LC,” he added.
He said that the textile and leather sector hard currency demands are not considered very small. However they are not equal with the demand of heavy industries like the steel industry.
Most of the inputs for the textile and leather sector are on imported items, for instance the garment sector is still mainly using import fabrics and cotton is also imported like accessories, according to Haile.
He said that the steel sector is one of the major areas that support the country’s developmental projects. But he preferred to refrain from speaking further about the sector as he said there are others following it.
The manufacturing sector will grow by 24 percent in the coming years of GTP II, while total industrial sector development is targeted to register an 18 percent growth.
The manufacturing sector has grown by 8 percent in the past five years of the GTP I, according to the National Bank of Ethiopia (NBE). Based on the current plan, it is expected to register a threefold increase. The industrial sector share will also reach 23 percent of the GDP by 2020.
The manufacturing sector is one of the basic pillars of the economic restructuring. In the final year of the five year plan, the sector is expected to generate USD four billion from manufacturing exports.
While exports from the manufacturing sector currently accounts for only 10 percent of the total exports, it is expected to make up 25 of the total share of hard currency earnings in GTP II. Manufacturing will rise to 40 percent of total export earnings by 2025.