USD 500m released to manufacturing but factories still thirsty

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The government via its financial giant, Commercial Bank of Ethiopia (CBE), has released highly anticipated hard currency to the manufacturing industry. However, it’s less than what is needed, Capital has learnt.
Sources close to the industry disclosed that last week the state bank sent the letter of credit (LC).
According to the information Capital obtained, the sum of USD 500 million has been released for those engaged in the industrial sector. Sources said this time around the LC was not available for finished goods importers.
The latest release is the second time within almost six months after the USD 300 million was approved in March.
Even though this is a positive first step USD half a billion is much smaller than the demand, according to sources.
Experts in heavy industry told Capital that the amount is relatively high compared with the March disbursement; but it is still very small compared with the expectation and may be used to import a limited amount of inputs for several weeks of production with up to 20 percent production capacity.
In March 2017 and a year before the bank released about one and two billion USD respectively to fill the demand of the industry but the latest trend indicates that the amount has declined.
The shortage of hard currency has forced manufacturers to operate at 10 to twenty percent capacity.
Some of the companies have also closed their industry due to insufficient hard currency access. “The situation has forced business to close and some are just paying salary to employees,” an industrialist, who wanted to be anonymous said. “The industrialists want to fire their employees but are afraid of the community, who may become angry about the situation and damage the factories,” he added.
The production cost has also increased because manufacturers are fully employing people but making less, according to experts. Finished goods importers have taken advantage of this since they are selling products at higher rates but importing similar products at cheaper rates, experts said.
Even though the National Bank of Ethiopia issued a directive a few years ago forcing  banks to allocate hard currency on a first come first serve basis and an additional directive on allocated 40 percent of the hard currency for the manufacturing sector this is not often followed by private banks.
Experts said that currently the business community is focusing on importing finished goods. “If you see the cargo containers  in Djibouti now almost all are finished goods and even the coming vessels are loaded with finished material, which is a trend that was seen about 15 years ago,” an expert in the manufacturing industry claimed. Relatively exporters have better options to get hard currency but most of them are importing finished products, experts claimed. They add that this harms the manufacturing industry.
Recently the Ministry of Industry has asked manufacturers to come up with their demand and real production capacity, because the current allocation is far from what is needed.
Prime Minister Abiy Ahmed (PhD), recently secured USD one billion in cash from UAE and has worked to get more foreign currency by combating illegal exchanges.