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Even though the National Bank of Ethiopia (NBE) has mandated several preconditions and laws for banks to follow in order to reduce the hard currency shortage, manufacturers claim that the process is not being followed properly. Meanwhile bankers argue that they are focusing on their profitability.
Businesspeople Capital interviewed said their industry mostly secures a letter of credit (LC) from public financial firms as opposed to private banks, who have been strictly advised to give priority to manufacturing after acquiring some basic import items.
Senior banking experts that Capital spoke about the issue said that even though the central bank made strict rules they are distributing their hard currency to the sectors and businesses that maximize their profits and give more advantages.
A senior baker, who worked on one of the old established banks, said that it is obvious that banks find ways to bypass the NBE law for the sake of profit. He said there is uncounted hard currency, even though the resource is very limited. “In this case banks are looking for customers who are coming with different benefits for banks,” he said.
A senior expert said that even the central bank applied directives banks do not follow the directives strictly. He said that the LC is one of the areas that the regulatory body has not properly followed the implementation. “There is a huge limitation and lack of capacity by the experts at NBE besides the weak follow up of the operation of the banks,” he added.
In this serious hard currency shortage, sources said that even though there is a NBE directive that requires on a first come first serve basis, “one of the private banks operating in the country has approved over USD 50 million within a short time interval for a single importer, who is not engaged in the export sector. While there are several customers waiting for long period on the registration list of the bank to get the foreign currency,” a source said.
The NBE directive issued in 2016 stated that 40 percent of the LC’s must go to the imports of the priority sector. The import of petroleum, fertilizer, agricultural machines, inputs, spare parts, medicine and related items, industrial inputs and accessories, supplement food for babies, are mentioned as a priority for the hard currency allocation.
Official sources at banks, who demands anonymity, admitted that the first come first serve or priority import goods of the NBE are not properly applied by banks. “We are giving a priority for customers who come with better deposit or benefit of the bank,” one of the bankers said.
“Even though some times NBE issued a directive it is not properly followed that gives plenty room for bankers to abuse the sector,” another banker said.
However the manufacturing sector actors who are mainly engaged on import substitution or export complained that they are almost stopping their production, while others that import the finished products that can be produced locally are accessing the hard currency. One of the manufacturers told Capital that he has opened an LC at one of the private banks he could not get the foreign currency because another investor secured thousands of dollars from private banks within a short period of time to import the goods the manufacturer produces locally.
Manufacturers complained that despite NBE regulation that considered the priority and benefit of the economy, it is not properly controlling the banks day to day activity whether they are following the registering line or the priority sectors.
“Recently the central bank penalized bank leaders on illegal activity in relation with hard currency allocation, while the sector is highly corrupted on different and visible conditions,” a business actor who has close relation with the banking sector expressed his observation. Manufacturers claimed that the Prime Minister Office should be involved on the issue to see the challenge at the central bank and commercial banks. “Our hope on the financial regulatory body has vanished,” the manufacturers said.
“It is confusing why the central bank prefers silence in this regard,” he added. Other experts recommended that the hard currency illegality that is seen on private banks might be tackled if the government facilitated about USD one billion that can be disbursed not at once but within few periods of time. Manufacturers have expressed their concern that the shortage of hard currency might create an economic crisis in the near future since several heavy and medium industries that managed over a 100 thousand employees halting their operation for several months. Manufacturers have claimed that what they are producing is not higher than 10 percent of their capacity and the others have already shut their factories due to lack of input.