While the government is working to solve the problem with the cement market, traders continue to distract the already disturbed market by selling a quintal of cement up to 800 birr.
The illegal increasing price of cement in the open market has sparked challenges on the construction industry. The government is a taking number of steps to improve the supply chain and increase the price of cement which is the main impute for the construction sector. Capital has observed that by night time in different parts of the country, cement wholesalers are selling cement up to 800 birr per quintal.
The government has set a factory production price for the 12 listed cement factories ranging between 233 birr and 300 birr to control the illegal brokers.
In an attempt to solve the chronic shortage of cement in the market in a sustainable manner, the Ministry of Trade and Industry has been working for more than one month by assigning overseers at the factories to control their operation, and has organized taskforces in each cities as a control measure by mayors, said Kassa Alamrew, acting head of public relation at the ministry. However, he sensitized that the problem is deep and it is difficult to solve the problem by control unless the problem with supply is solved, hence surge in price unfolds from time to time.
Most of the stake holders claim that there is little control measures taken by of government on the market, and they state this as the main problem to the price spike. Cement producers on the other hand are tackling a long list of challenges including, unfavorable supply-demand balance, higher cement prices, escalating production costs, low utilization rates, social unrest, and a lack of foreign currency.
“The government has shown a strong determination to create a conducive business environment,” stated on of the cement producers.
Cement is well known as the back bone of the construction world an in similar fashion Ethiopia is a typical heavy-consuming cement market. However, the Ethiopian cement production had proven insufficient in meeting demand. In previous years through the development of the construction industry, massive public investment and infrastructure projects have increased the demand and consumption of cement.
After asking manufactures to set constant prices and pursue their distributers, the ministry has set a standardized price one month ago. According to the list 233.45 birr is the lowest price set from Derba cement, while 300 birr is the highest price from Ethio cement factory.
Last summer, due to the shortage of production, in the retail market cement had been sold up to 600 birr per quintal. Different stake holders in the sector have pin pointed that the price hike has been caused majorly by the rise of illegal brokers and the inefficient control of the government on the market. Moreover, in an attempt to solve the chronic shortage of cement the ministry has also allowed companies who had Diaspora account to import cement to sustain the market. Additionally the government has allocated 85 million dollar to alleviate the shortage of spare parts in the factory.
According to the Ministry of Trade and Industry, the shortage is mainly due to lack of spare parts, power outages, lack of inputs, lack of leadership and professional skills, security problems, supply of raw materials, amongst other problems.
Currently, there are about 12 cement factories in the country with 345,000 tons of production capacity per day.
Cement price spike stiffens market
Freight forwarders express burden over NBE’s directive
Logistics operators argue that the amended directive of the National Bank of Ethiopia (NBE) on foreign currency earnings and retention is not putting in to account the services they are handling.
It is to be recalled that on March 9, 2021, NBE had amended the ‘retention and utilization of export earnings and inward remittances’ under directive no. FXD/70/2021.
One of the major changes on the revised directive was that exporters of goods and services as well as recipients of inward remittances shall have the right to retain only 45 percent of their export earnings and remittances in foreign currency indeterminately in a retention account after deduction of 30 percent surrender to NBE from the total earnings. These meant recipients shall use only 31.5 percent from the total amount they earned for unlimited timeframe after the deduction of 30 percent for NBE from the total amount and 55 percent after the deduction of NBE amount to banks. The banks share was an overall 38.5 percent from the total earnings.
In contrary, after the NBE deduction the previous directive gave a right for exporters of goods and services as well as recipients of inward remittances to retain thirty percent of the account balance for an indefinite period of time and the balance for up to 28 days. After the 28 days, any balance shall automatically be converted in the next working day into local currency by the customer’s ban using the prevailing buying exchange rate.
Logistics actors, who are mainly working on freight forwarding with their foreign investors, are arguing that the directive has induced an unnecessary pressure on their charge settlement that is supposed to be due at Djibouti.
One of the sector leaders told Capital that there are some logistics companies which are working with those investing in Ethiopia as foreign investors. He said that these logistics companies prefer to flow the service charge, which is in foreign currency, into Ethiopia than direct cost settlement for logistics charges. “We prefer to settle the charges via Ethiopian banks because we shall use the remaining amount for other local partner customers who are paying on birr to settle the cost in Djibouti,” he explained.
As a principle, NBE has a special arrangement for the allocation of foreign currency for port charges. It gives a right for the freight forwarding sector to access foreign currency and transfer port charges within seven days after the application, while the foreign currency shortage at banks push it up to three and more months.
Due to that logistics companies which are working with customers who are paying on foreign currency receive the commission via local banks and settle the port charge by themselves.
They reminded that more than 90 percent of the logistics service payment is not the earnings for Ethiopia. The amount is paid directly by clients to port and when payments are done via local banks freight forwarders are using the foreign currency reserve in order to settle the service charge for a given client and the balance for other local customers.
“After paying the due for port charge at Djibouti the balance which is a small amount is to be saved at local banks and shall be paid for other birr customers’ in the port service payment,” the sector experts said.
“However, the new directive has significantly reduced the amount that the hard currency generates thus placing them in pressure for extended arrears,” they claimed.
“After the NBE 30 percent deduction in the past we shall use the 70 percent for charges fee and for the remaining small amount we may save it under the 30 percent retain account for an indefinite period of time for the payment of other local customers payment at Djibouti,” they explained.
“Based on the new scheme for instance form USD 100 earnings the government (NBE and banks) totally deducted USD 68.5, which affects the logistics sector,” the sector operators added.
“Currently the amount we are using is reduced to 31.5 percent from the total earnings that is indirectly burdening the country on accrued foreign currency settlement for the port,” they say, adding, “the operation we used to follow was helping to ease the pressure on banks, while it has cut by the NBE new directive.”
The freight forwarding actors expressed that they are to put forward their expectation through their association, Ethiopian Freight Forwarders and Shipping Agents Association, in order to inform the matter to the NBE so as to arrive at a solution.
Consultancy to follow after ‘securities market’ ratification
A consultant that has wide expertise in coming up with the idea of a startup capital is expected to be hired as the next stepwise procedure for the formation of the securities market.
Melese Minale, Senior Macroeconomic Advisor at the National Bank of Ethiopia (NBE), which is leading the formation process of the Capital Market Authority, a regulatory body for the upcoming security market, said that the next step after the ratification of the proclamation by parliament will be hiring a consultant to determine the formation process of the market and its startup capital.
According to the draft proclamation that is expected to be ratified before the end of the parliament session, the government or public enterprises share would not be higher than a quarter of the total capital of the securities market, also known as the secondary money market. However, it has stated that if there is less interest from the private sector that includes foreign investors, the government shall take more than 25 percent share.
Melese told Capital that so far the establishment capital is not so far known since it needs further studies by hired consultants, “Due to that at the current stage we don’t have a say on how much the startup capital of the securities market is or the 25 percent share of the newly coming secondary market.”
“Currently, we are prioritizing for the ratification of the proclamation and formation of the regulatory body. The other will be followed in like manner,” he explained.
Based on the country law a paid-up capital of the newly formed public enterprise is 25 percent of the total capital and the balance shall be filled in extended period.
“If the government shall manage the upcoming trading platform fully, it shall only pay a quarter of the total formation capital,” Melese explained if in case the government may fully controll the formation process.
However, few weeks ago he told Capital that there are significant interests from the private sector not only from local but well known international investors.
According to the Senior Macroeconomic Advisor, the secondary market establishment capital will be determined by the economic size and future outlook of the sector. Exchange by itself is a business that generates revenue from actors’ fee from different services it provides under its platform.
Studies that should know like how money companies shall be involved on the platform under the criteria of the security market, the economic size and long-term projections shall be undertaken in the process of establishment.
Two discussions including one public hearing has been held on the tabled draft proclamation in the past few weeks, while besides talks at the parliament different seminars and dialogues have been conducted by hosting of private firms and business organizations.
Recently on the discussion with the upcoming market, Melese told the private sectors that the commencement of capital market would have different inputs for the economy starting from the expansion of the liquidity in the economy.
“Based on different surveys of the World Bank, World Economic Forum and other local studies access to finance is indicated as a serious bottleneck for the Ethiopian economy and doing business that shall be mitigated by such kind of secondary market mainly for long term projects is essential,” he said.
Developing an alternative financial market opportunities has also a rational of market foster price discovery and promotes very important efficient allocation resources in the economy.
Mobilizing national saving would create massive liquidity which will benefit the economy. National saving, mainly the financial saving, will narrow the absence of opportunities for long terms saving in the economy.
Hard to argue that war is for the defense of people
One of the most unnerving things about analyzing politics in Ethiopia has been the need to start thinking in terms what financial analysts call “tail risk” the likelihood that events normally considered rare or unlikely will actually happen.
Five years ago, most pundits would have described as exceedingly small the likelihood of someone like Dr. Abye Ahmed a junior minister who had no political experience at all being elected prime minister. Yet it happened.
Two years ago, epidemiologists would have given a range of probabilities on the question of whether a pandemic would soon kill millions around the world in the space of 10 months.
Six months ago who would have predicted that the Federal Government would declare a state of war on TPLF?
Conditions in Ethiopia today resemble those of 1970s Ethiopia. The country is sliding for yet another civil war. Already the ties that bind us are fraying at alarming speed we are becoming contemptuous of each other in ways that are both dire and possibly irreversible.
One of the oddities of civil war is that it’s hard to say, except in retrospect, when a nation has passed the point of no return. Once you have crossed that fateful border, there’s no possibility of turning back.
Is that where we are today? For the answer to be “no” means either that one side in this devastating political conflict will simply admit defeat, or that there will be some softening of grievances, followed by a negotiated settlement. Does that seem likely?
You tell me.
What if civil war isn’t what we should be worried about but instead something different? Something like the Derg’s Red Terror, perhaps?
That’s even more terrifying. But let’s stick on the civil war issue, for now.
Looking at the deepening rift in Ethiopia between the administration of Abye Ahmed and the insurgents in Tigray the fundamentally incompatible visions of Ethiopian nationhood that the two factions hold, the huge damage already done, the scope of the humanitarian crisis, the thousands of people killed, and the implacable fury with which they grapple for every atom of power – can any of us imagine some way forward in which this Government and the people of Tigray just “bury the hatchet” and “hug it out”?
The war in Tigray will definitely tear apart the social and economic fabric of the country. The number of casualties is devastating, but the war is also destroying the institutions and systems that societies need to function, and repairing them will be a greater challenge than rebuilding infrastructure a challenge that will only grow as the war continues.
Some voices are beginning to be heard on the question of whether or not Abye Ahmed’s administration has the means to defeat the increasing insurgency in Tigray, prevent a possible conventional war with Sudan and its allies, resolve the GERD issues, halt the Eritrean forces (which cannot be labelled as pacific) from rampaging Northern Tigray, and the various internal ethnic strife and violence haunting the country today.
Is Abye Ahmed the right man to untangle this mess? While at the same time remake Ethiopian society… remold its economy… and reshape its politics?
Can he? You decide.
No matter how hard the administration tries to pacify Tigray, it will always prove to be unpredictable. The TPLF forces will certainly make sure the region remains in “not peace” condition, along with all the economic and security ramifications. As far as we know, no one has succeeded in making a country prosperous while waging a civil war.
The government and particularly the Prime Minister needs to be far more honest about the crisis in Tigray. It is far from clear how it (the Abye administration) plans to end the war. In any case, if it wins some form of tactical victory, the country still must live with the reality that follows, and purely military solutions will always account to the equivalent of cut and run. If it (the Abye administration) loses its grip, the wrath of the masses may be impossible to contain. Ethiopia with a history of cleavages and civil wars, and diverse population and socioeconomic disparity can be catapulted into Balkanization.
The question is, can this outcome be avoided?
At this stage it may require some miracle. But still, the Abye administration or the coming administration should give priority to stopping the war, first by withdrawing its forces from Tigray unconditionally and avoid, further social disintegration, political breakup, or collective nervous breakdown. Second, it should demand the withdrawl of Eritrean forces from the territories of Tigray. Third, it should seek mediation to end the conflict, and fourth it should mobilize sufficient buy-in from external actors to support the entire process.
There is no easy solution to this complex and destructive war, but if our leaders are going to follow advice our intuitions tell us that external actors play a crucial role in determining how (and whether) civil war concludes.
Don’t waste time on excuses. Do the right thing!
