The controversial suppliers’ credit directive has been revised to include local manufacturers to access inputs on credit.
It is recalled that in October 2017, the National Bank of Ethiopia (NBE) and the Central Bank, amended the ‘external loan and supplier’s credit directive no. REF/05/2002’- which aimed to allow foreign investors to access foreign commodity credit with a guarantee from local commercial banks.
The 2002 directive had given the right to investors that contributed for the generation of hard currency like exporters to access foreign commodity on credit.
However, the amended directive has been aimed to incentivize the FDI to invest in the country and protect and encourage foreign investors, local manufacturers who are involved on similar investment had previously criticized the government’s decision calling it an apartheid law which excluded the locals.
Similarly, banks which have huge sum as a loan on local investors, have also ridiculed the amended directive since it is creating unfair competition between local and foreign investors that are engaged on similar industry.
The financial leaders and experts have also expressed their concern that it may pressure them to settle the credit as opposed to allocating foreign currency on a letter of credit basis.
At the same time, banks expressed anxiety pointing that they would be unable to collect their money from manufacturers who received large loans.
Besides that, investors and experts argued that the directive goes against the investment proclamation by stating that the 769/2012 investment proclamation erroneously mentioned on the central bank directive FXD/47/2017 as ‘679/2012’ on its part one article 2/4 stated that – investor means a domestic or a foreign investor that invested in Ethiopia.
They claimed that the proclamation indicated that it has not divided local and foreign investors in relation to acquiring external loans, while the central bank directive went against it.
“This is an apartheid law that only benefits foreigners at the cost of local investors,” they called the 2017 directive.
Meanwhile, in his latest press conference that covers the whole economic condition of the country, Eyob Tekalgn, State Minister of Finance (MoF), said the directive has been revised again on the aim to include Ethiopian manufacturers on the scheme.
“We have undertaken correction on the directive that is now on draft stage and will be ratified by board of directors of NBE for implementation,” he explained.
Eyob added that as per the revised directive, local manufacturers will be benefited on importing input and parts on credit scheme that is paid in six months by customers’ banks.
After the new information came from MoF, bankers appreciated the decision.
Asfaw Alemu, President of Dashen Bank, reminded that the access to foreign currency is very strange because of the shortage as a nation, due to that in order to attract the FDI to invest in the country and give room for banks to breath under the suppliers’ credit, the credit was stipulated to be settled in 180 days.
“I share the idea that the local manufacturers that are involved in import substitution should get similar support like foreign investors in that they may come up with foreign currency for investment and national images. At the same time the local manufacturers who transform from trading to industry, value addition, job creation, import substitution and changed their import dependent business to manufacturing should have get similar support as FDIs,” Asfaw told Capital.
He said that it is of great benefit for crucial industries that are also indebted at banks.
“The credit facility may benefit the manufacturers but the key issue is that the banks access for foreign currency that is supposed to be expanded because the suppliers’ credit also at the end of the day will be paid by foreign currency,” the President says adding that, “settlement capacity of banks should be also improved”.
In over four years past, the hard currency shortage has forced manufacturers to shrink their production or stop it altogether.
According to the latest report of MoF that evaluated the six months public sector debt, indicated that the suppliers’ credit stock stood at USD 1.62 billion, which is 5.45 percent of the total external debt.
So far, local manufacturers aresupposed to wait to get the foreign currency under letter of credit (LC) for their importation of spare parts and input, but the process takes several months to years. However, as per the permit from NBE, foreign industrialists are directly accessing huge sum of foreign currency without any delay from ordered banks.
There are also claims from the private sector that the FDI is engaged on illegal currency market to suck their dividend illegally.
Eyob said that he does not have information about the issue but he said that if there is such kind of activity it shows that the issue is not only solved by policy measures but also must take into account holistic market correction which requires implementing.
“If the FDI’s are involved on this activity, I would be surprised on the involvement of these big companies and their management of it. But anyway, it indicates that the market distortion is not only solve by controlling but also by holistic market correction which requires implementing,” he explained.
Inflation
The inflation is mainly galloping by the price hike on food items that take 60 percent of the inflation basket.
Grain and edible oil has significant contribution for food items inflation. “Until the problem is fully alleviated by higher productivity, restructuring the market structure would be vital,” the State Minister said.
He said that basic needs will be imported and some of them like wheat are being imported besides using the biggest public enterprises structures like Ethiopian Trading Businesses Corporation to be involved on the retail trading to calm the market as per the scheme of immediate solution.
The macroeconomic team and relevant government bodies like Ministry of Trade and Industry are evaluating the latest price hike in the market to come up with concrete solution.
He hinted that the market structure is the challenge for the price hike and he argued that the government will correct it on different measures.
He said that the government is responsible to mitigate the inflationary behavior, while at the market structure there are illegal actions and sabotages.
He argued that the frequent devaluation would not have significant effect on the price increment and shows that the major inflation is come from food items like teff, corn, meat, barley, oil, potato, onion milk, pepper and others, “This indicated that the problem is correlated with production and productivity than devaluation. That is why we are working aggressively to increase productivity on mechanized agriculture for fundamental solution for price stability.”
Liquidity
In terms of banks liquidity, it has expanded significantly boosting up to 25 percent increment, Eyob said. He added that because they are highly liquid, they are involved on the treasury bills market.
The latest government measures to impose on limitation on cash withdrawal, cash on hand and monetization, the banks liquidity has climbed and narrowed currency outside banks to 64 billion birr as per the end of the first quarter of the 2020/21 from 109 billion birr at the end of the last financial year.
The State Minister has hinted that the capital market will commence in the coming fiscal year. The proclamation to form the capital is at the parliament for ratification.
He said that technical speaking works are practically started in terms of training those who will be involved on the market and selecting the required technology.
Regarding the market based foreign exchange; the State Minister said that it is part of the three year economic correction, ‘Home Grown Economic Reform Agenda’. “It will take its path, there is no reason to rush to implement it,” he said, while Prime Minister Abiy Ahmed hinted that it will be put in place at the beginning of the coming year.
Local manufacturers to enjoy suppliers’ credit scheme
Ethiopost gears to diversify in to the financial industry
The only postal service provider in the country, Ethiopian Postal Service Enterprise (Ethiopost), has started its process to establish its own bank and a mobile money service. The bank is expected to have all kinds of banking services including digital finance and seeks to boost non-cash payments in the country.
The service provider is geared to have its own financial institution operated by the post office by providing customers with access of banking service, including direct deposit, cards, and online bill payments.
According to sources from Ethiopost, the enterprise has started its process to engage in the sector in accordance with the National Bank of Ethiopia’s regulation and guidelines. Last year, Ethiopia’s Central Bank issued regulations allowing non-banks to offer basic financial services, potentially opening the door for companies mulling a play in the wireless market by adding mobile money to their portfolios.
The CEO of the Ethiopian Postal Service Enterprise, Hanna Arayaselassie, said the enterprise is focusing on updating itself by providing a wide range of E-commerce and various financial services.
“We want to engage in E-commerce and support the nationwide vision of creating and expanding a digital economy. Ethiopost is ideally suited to make this reality through its extensive network of branches and years of experience in the logistic sector,” stated Hanna.
According to the CEO, Ethiopost has been through a series of losses over the past years as result of low staff motive and capability, poor customer service, weak marketing and traditional and outdated processes and services. This has rendered the enterprise to become uncompetitive in service provision as well as hindered its financial standing.
Starting from last year May, Ethiopost has been under reform, to secure firm financial standing in order to engage in new services including E-commerce and logistical financial services that offer competitive services as well as enhance the image of the service provider.
Accordingly, the enterprise is waiting for the government’s support to make sure Ethiopost continues providing this service whilst remaining competitive. “We have submitted our interest to the Ministry of Finance to make the financial standing of the enterprise stronger,” the CEO pointed out.
In the last six months of the current budget year, the service provider has earned 230 million birr in revenue from its service which enabled it to meet 91 percent of its plan. The number has shown 10 percent increase when compared with last year same period due to extensive cost reduction efforts.
During the stated time post, Ethiopost has handled more than 4 million in total mail traffic across its letter post, parcel post and EMS service. The EMS service took the lion share in terms of revenue contribution while the letter post accounted for the largest number of traffic.
In addition to its services, Ethiopost is planning to start giving door-to-door service for individual customers of which currently the service provider is giving door-to-door services to various government and non-governmental offices.
In addition to its classic mail service, complimentary services such as passenger post bus services, logistic and moving services, financial services and goods distribution has collectively contributed to 10 percent of the total revenue. According to Hanna, even if currently cross country service of the post bus has been stopped there are plans to restart the operation.
Given the rich history of the service provider that spans 127 years with close to 900 branches throughout the country, the CEO acknowledged that Ethiopost has not been profitable for a while as is expected. However, she echoed that the recent reform since last May that aims to modernize its work as well as optimize its operation and quality of service is the right step in terms of moving the enterprise forward.
As the CEO highlights, in order to enhance its capacity, Ethiopost is optimizing its resource and producers by automated system of IFRS and ERP. “These methods could help us know and manage the overall resource thus aiding to minimize cost whilst increasing revenue,” she remarked.
The IFRS implementation is expected to be completed towards the end of the current budget year, which was started four years back, according to Hanna.
Amending the riddled procurement proclamation
The highly anticipated draft procurement proclamation amendment has been tabled to the council of Ministers for review before being sent to parliament for ratification. The customs tariff book is under revision, while the duty free scheme is expected to come up with new arrangements.
The new proclamation that will revise the 2009 ‘Procurement and Property Administration Proclamation649/2009’ is expected to stiff the procurement process for the federal government.
The draft proclamation is stated as one of the major roll outs of the reformist government which is applied to improve the economic condition of the country.
Eyob Tekalegn, State Minister of Finance (MoF), said that the draft proclamation is one of the highly expected laws to be improved before the end of the current parliamentary period.
He said that the existing proclamation has gaps that take unnecessary time on the procurement process and shall therefore be improved in the coming amendment.
He said that the public procurement system is riddled with serious problem. “To tell you the truth it has failed,” he remarked.
He explained that the procurement scheme always takes a long period with a focus on proforma, not considering value for money alongside other massive problems.
“Based on that, we have revised the proclamation and sent it to the Council for review in the coming two weeks, which will then face ratification by parliament,” Eyob added.
The procurement process for instance since last budget year was highlighted by failure. The Public Procurement and Property Disposal Service procurement’s attempt to buy wheat on behalf of different government bodies had failed for different reasons that led to experts on the sector to critic the government rules and directives.
Eyob accepted these claims and he emphasized that it will be solved on the upcoming revised law.
He said that the minimal bid security amount had allowed anybody to try their best to participate on the bid and this is supposed to be improved. “For instance on the wheat procurement, which is close to a billion dollar procurement per year, any small company was participating on the bid. The problem is the amount of bid security, which is very small,” he explained.
He added that the bid security will be one of the area to face revision on the upcoming law, “When you come up with such huge value of procurement you have to make sure that capable bidders participated in the process.”
According to the State Minister, a plausible solution should be to up a put high bid bond amount, select proper time for any given product procurement and other practices when implementing the process.
He said generally that in the new proclamation holistic changes will be put in place. “For instance public enterprises procurement process will be improved. For the small equipment procurement enterprises should not engage on 4 months process. The new proclamation will give some mandates to cut the unnecessary procurement process.”
The 2010 public procurement directive article 16 sub articel16.2 stated that the amount of bid security a public body may require shall be in the range of 0.5% to 2% of the total estimated contract price, which the public body has to fix and indicate in the invitation to bid and the bidding document.
“However, the bid security to be fixed by the Public Body shall not exceed 500,000 birr,” it added.
On the bid security for the procurement of the 100,000 metric tons of wheat, the bid security was not higher than 100,000 birr, which companies who are familiar with Ethiopian wheat supply criticized stating that it is very small compared with the value of the grain.
They said that due to the smaller security amount, untested new participates were involved on the bid process which led to bidders’ winning the bid but consequently failed to supply the product. “This has happened for the past one and half years,” experts argued stating that the government had waited until now to change it because it was not mentioned on the proclamation.
“It shall be corrected by amending the directive,” they said. Eyob to this end said that the relevant body has understood the situation that transpired in the recent past and the government is now working to cut the source of the problem.
human trafficking in the country
Deputy Prime Minister and Foreign Minister Demeke Mekonnen called for community based efforts to address human trafficking in the country.
Addressing participants of a national forum to tackle human trafficking and smuggling, Demeke stressed the need to wide-ranging participatory action to tackle human smuggling emphasizing need to consolidate community based preventive activities.
A public mobilization forum focused at seeking possible mechanism to fight human trafficking and smuggling was conducted at the Sheraton Hotel on Wednesday March 3, in the presence of Ergogie Tesfaye Minister of Labour and Social Affairs, high ranking government officials and other stakeholders.
