Capital Ethiopia Newspaper

FOREX drought strangles local suppliers

Companies ask government for amnesty to fulfill contracts

 
Local companies are struggling to supply materials needed for government mega projects within the required time period.
Companies Capital spoke with say lack of hard currency has prevented them from supplying construction materials for the projects. People working in the industry say this is another example of the hard currency crunch choking Ethiopia’s economy. Many manufacturers say they almost did not produce the entire year.
“Now buyers are going to confiscate or annul the performance and bid bonds because companies failed to deliver on time,” a manager for a construction equipment company who asked to be anonymous told Capital.
The project managers, particularly bureaus at the Addis Ababa City Administration, are now notifying the companies that they will annul the agreements and confiscate the performance bonds, which usually amount to ten percent of contract’s total value.
The construction equipment manager pointed out that legally, lack of foreign currency is not a legitimate excuse for failing to deliver a product like a natural catastrophe or war is. In Ethiopia’s commercial code a hard currency shortage is not considered a ‘Force Majeure’ or ‘Act of God’.
“It was not an issue during the period when the code was ratified but now it is the country’s major economic challenge. The government should incorporate the issue into the law or facilitate hard currency,” an expert said.
“We have insisted that public institutions help us obtain hard currency to produce the materials and extend the deadline, but they have not supported us; the agreement has not taken this into consideration,” a company owner claimed.
This issue was one of the major topics of discussion at the Metal Industry Development Institute’s (MIDI) latest meeting, as the steel sector is a major victim of the FOREX shortage.
Sources at the Association of Basic Metals and Engineering Industries told Capital that they have asked for help from the relevant government bodies and requested that public institutions consider the hard currency shortage to be a ‘force majeure’. “We have also recommended that they allow the contract to be fulfilled on an installment basis and allow factories to supply the product based on the amount of hard currency they have secured,” one of the industry actors said.
Sources said that the MIDI wrote a letter to the city administration asking them to consider the foreign currency shortage and not penalize local manufacturers since they are important to Ethiopia’s economy.
Manufacturing industry representatives reportedly believe that the only source of hard currency for the sector, which is mainly engaged in import substitution, is accessed from state banks, particularly from the Commercial Bank of Ethiopia. Private banks; they argue, provide hard currency to those they have a ‘special relationship’ with.  They claim that even though the National Bank of Ethiopia has a directive forcing banks to prioritize manufacturing when approving hard currency the central bank has not been properly controlling the Letter of Credit approvals from private banks.
The hard currency shortage has affected the nation’s entire economic activity since the imbalance in earnings between hard currency and imports occurred. Many manufacturers have shut down or scaled back operations.