Metal Engineering Industry says it needs better forex access

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The Ethiopian Association of Basic Metals and Engineering Industries (EABMEI) has expressed  its concern to the Office of the Prime Minister and Industry Standing committee at the parliament about the National Bank of Ethiopia (NBE) directive no. REL/05/2002, ‘external loan and supplier’s credit directives’ which were amended late last year as ‘FDX/47/2017, that excluded local investors from the access of the suppliers’ credit scheme.
The association that has close to 77 member companies engaged in five different metal and engineering sub sectors employing 50,000 plus workers has appealed with a letter to the PM Office and the standing committee petitioning that local investors be considered as equal to all investors.
The hard currency crunch that has severely affected the economic activity of the country has been worsening in the past months and among the sectors most affected are the manufacturing sector that hold tens of thousands of employees, according to experts.
Solomon Mulugeta, President of the EABMEI, insists that the basic metal and engineering sector is a major area that needs priority access to the scarce hard currency after the petroleum sector. He told Capital that the foreign currency shortage deeply affects the activity of the stated sector.
According to the letter that the association sent to the relevant government offices, it has asked the government to revaluate the directive that it amended via NBE last October.
The old directive had given the green light for investors to import their inputs via a supplier’s credit scheme if they are engaged in a hard currency earning or export sector.
Currently, foreign based companies that have investments in Ethiopia are allowed to import the required input through the supplier’s credit scheme, to continue manufacturing their export oriented or local supply product.
The NBE directive article 4.2 states that FDI companies are eligible for supplier’s credit.
“We are not saying why the FDIs are allowed to use the scheme, but we need to include all actors including the local investors,” Solomon said.
Solomon claimed that the issue has to be solved quickly so as to ensure fair play for all actors, who are engaged in similar investments be they local or foreign.
The letter the association sent to the PM Office and copied to more than seven public offices and companies, stated that the steel industry is currently running on a forced under capacity mode.
It also notes that although the government policy states that local actors are the pillars of the country’s industrial development, the NBE amended directive in late 2017 stands against the government’s intent.
“The system will kill the local industry and make the country dependent on foreign investors,” the letter explained.
Foreign companies have better experience and exposure to access hard currency and markets than the local investors and better access for such kind of credit, it argued.
“Foreign investors are not here to compete with local investors, which are very infant, but the intention of the directive is unclear,” the association head expressed its confusion.
“If we see the intention positively the directive may target to maintain the FDI flow and encourage them, but it has to be set with conditions that the government creates several incentives,” he added.
The letter further expressed that the FDIs in-kind loan will also be settled from the national reserve, which is against the protection of local investments it claimed.
The issue was also raised at the manufacturing exhibition that opened late last week at the Millennium Hall,to the Deputy Prime Minister Demeke Mekonnen.
“Currently only the problem and concerns of the issue is raised but it has to be clear how such directives and rules are put in place by the central bank and for to what end,” Solomon claimed.
A huge amount of money has already been invested and such kind of directives drafted and issued without consultation with relevant bodies are significantly affecting the country. Such issues need to be discussed and we want to talk with central bank officials and the PM,” he commented.
In its conclusion of the letter the association has also expressed its interest to meet relevant bodies for further dialogue.
EABMEI has 77 members that include five sub sectors. The sub sectors are long, flat, fabrication, engineering, and automotive product producers.
The long product producers produce rebar, wire and cable, tubular section and other related products. Flat product producers engaged in galvanizer and roof sheet, while the fabrication produces steel structure, thinker and truck bodies. The engineering and automotive sectors are engaged in producing machines and parts, and automotives respectively. The sector has directly created direct employment for 50,000 and indirect up to 250,000, according the association head.