The Ethiopian Association of Basic Metals and Engineering Industries (EABMEI), wrote a letter to the Prime Minister and several relevant government officials opposing the National Bank of Ethiopia (NBE) directive. It has been also reported that the suppliers credit scheme is suspended.
The association that represents 74 manufacturers in the specific heavy industry has claimed that the amended directive no. 47/2017 of NBE discriminates against local businesses. Previously, NBE has amended the 2002 ‘External Loan and Suppliers’ Credit Directive’ in September 2017. The amended directive has added an article that allows foreign investors to access suppliers’ credit.
The suppliers’ credit scheme has given extraordinary rights to foreign investors who ask for hard currency to import inputs, machines or spare parts without any precognitions imposed by the regulatory body on forex.
Those who have the right to use the suppliers’ credit scheme will be able to get foreign currency right away when they go to banks, while others including local investors, which are even invested on similar sector as foreigners, are expected to wait the line at the banks to get foreign currency on letter of credit (LC) scheme.
This scheme has disappointed local investors because they claim that they are discriminated by a single directive of NBE. The directive they call ‘apartheid law’ is pushing local investors to leave the business and sell off to foreigners. Some of them argue that the government has a policy to encourage the FDI that they supported but claimed that the law should give equal space to all investments.
The EABMEI’s letter issued on November 22 and sent to the Industry Standing Committee at the parliament, PM office, Deputy PM office, Minister of Finance, Minister of Trade and Industry, Governor of NBE, Ethiopian Investment Commission, Ethiopian Chamber of Commerce and Sectoral Association, Metals Industry Development Institute (MIDI) and members explained the effect observed in the sector.
The letter that Capital obtained stated that the member manufacturers are suffering from the shortage of hard currency, while it is a good decision that the government allowed the industry sector to support to access hard currency via suppliers’ credit to import required raw material and other accessories. However, they argue that “the directive article four stated only foreign investors can access the suppliers’ credit scheme against the discrimination of local investors, who are involved in the same investments as foreigners,” the letter t signed by Solomon Mulugeta, General Manager of the Association, reads.
It elaborated that due to the directive allowing investors to secure hard currency without delay another challenge is imposed which dries up hard currency resources at banks, which indirectly affects the local investors who are unable to get hard currency via LC.
Mostly the credit on this scheme is settled by 180 days forcing banks to keep their foreign currency to settle import suppliers’ credit.
Banks have also complained that the suppliers’ credit directive put them underpressure. They recently told Capital that the supplier’s credit scheme not only affects local investors but the financial institutions themselves because there is a default risk from their clients. Most of the investors have acquired a huge amount of money as a loan and advances from banks, while currently due to lack of hard currency local investors complained that they are defaulting to because they cannot settle their debt on time.
Bankers say getting the letter of credit up front breaches the first come first serve directive of National Bank of Ethiopia.One of the prominent private bank presidents, who requested anonymity, told Capital that initially the notion of the supplier’s credit indirectly forced the banks which applied without the consultation to settle the payment by the maturity date. “It has forced the banks to face a default risk which affects the country,” he said.
“When the banks secure hard currency they focus on settling the credit rather than approving the LC for its other clients who are not included on the supplier’s credit scheme, which is also another effect on local investors,” bankers said.
The four page letter that the association wrote to top government bodies stated that the NBE directive issued against the investment proclamation and amended in 2012. “The investment proclamation no. 769 defined the work ‘investor’ as both domestic and foreign, and article 36 of the same proclamation stated that ‘an investor who acquires an external loan shall have such loan registered with the National Bank of Ethiopia in accordance with the directive of the bank. Both articles of the investment proclamation did not classified local and foreign investor,” it added.
Currently manufacturers not only on the metal and engineering sector but others engaged in import substitution claimed that their operations are not higher than 10 percent of the actual capacity.
Fite Bekele, Public Relation of MIDI, which is the relevant government body following the metal sector, told Capital that they are working under the government development strategy that promote the foreign investment but clearly stated empowering local investors is crucial. “We wanted foreign investors due to they come with new capital, knowledge and technology that local investors shall grab, while local investors are different since they are reinvest their dividend in the country in contrary foreign investors,” he said.
He also shared the claim of the association and other domestic manufacturers. He reminded that his institute requested the national bank to get elaboration about the suppliers’ credit directive that excluded local investors. “We have written a letter to NBE on April 18, 2018 to get clarification about the directive which is against the investment proclamation,” Fite said. He added that in the same letter copied to the then Ministry of Industry and relevant sector actors they asked the central bank leaders to facilitate a discussion with stakeholders. “However, we did not get any response for requests,” he told Capital.
Sources said that in the past couple of weeks the central bank, which has given a support letter to investors for any of banks to get the suppliers credit, has suspended providing a permit for the import of items on credit. At the same time sources added that Yinager Dessie (PhD), who recently was appointed to governNBE, ordered experts at the central bank to re-examine the directive, however Capital was unable to confirm it from central bank.
Currently some of local manufacturers have halted their production and others are looking to sell their industries because they are unable to run at the usual production and face bankruptcy.
Recently, the National Bank has amended its loan directive that gives some relief for lenders from foreclosures. Investors appreciated amended loan directive that allows for more rescheduling for defaulted loans but they argued that the relaxed reschedule is not safe from interest increases. They insisted that the central bank should look for an amicable solution to give life for their business by providing access to hard currency.
The amended directive ‘classification and provision directive no.SSB/69/2018’ issued two weeks ago by the regulatory body has given more iteration for short and medium term loans and gives specific rescheduling and extension rates for long term loans than the preceding directive, which was amended in 2008. The directive has also give bank’s own decision on the conditions on outstanding principal payments when they extend the payment system.