The Ministry of Trade and Industry (MoTI) is denouncing the National Bank of Ethiopia’s (NBE) ‘External Loan and Supplier’s Credit Directives FXD/47/ 2017’ that gives the right to foreign investors to access foreign loans at the cost of local industries. The scheme has also been criticized for its vulnerability to corruption because approval is based on a one to one scheme.
Since last budget year the central bank has amended the directive issued in 2002 to allow FDIs to access foreign currency on the scheme of supplier’s credit in addition to traditional businesses that generated hard currency including exporters. Local manufacturers were neglected even though they may have engaged in similar investments.
The supplier’s credit scheme has given extraordinary rights to foreign investors asking for hard currency to import inputs, machines or spare parts without any precognition imposed by the regulatory body on forex.
This scheme has disappointed local investors because they claim that they are discriminated against 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.
The case has been one of the major controversial agendas in the economy since the amendment of the directive, while the central bank has stood its ground.
During the latest meeting held on June 6 at Capital Hotel and Spa between the local manufacturers and officials of MoTI the issue was hotly debated.
Fetlework Gebregziabher, Minister of MoTI, told Capital that the local industries would not be excluded from such kind of scheme without a concrete reason.
“Based on our stand we are not accepting that the supplier’s credit scheme only serves the foreign investors,” she says “the central bank should change its approach and include all actors.”
“If there are conditions that should be changed or arranged it has to be done and include the local manufacturers to access hard currency in similar manner like the FDIs,” Fetlework told Capital.
She said that the suspect on misdemeanor should be the responsibility of NBE. “The central bank is the responsible body to answer on the claim of corruption on the approving process of the supplier’s credit for each requests,” Fetlework added.
Individuals who closely follow the sector but declined to be mentioned due to the sensitivity of the case claimed that the method for approving the supplier’s credit is not clear and vulnerable to corruption. They claimed that they suspect that every approval may have a link of illegality. Sources said that the issue has been addressed by local investors to relevant bodies including Fetlework.
The supplier’s credit approval processes is undertaken on s one to one approach from companies and a representative of NBE, according to experts who know the scheme. Capital tried to talk Yinager Dessie, Governor of NBE about the case via phone but it was unfruitful.
Local investors say they are engaged in the same business as foreign companies, they are supposed to wait for the letter of credit (LC) for their foreign currency demand to import raw material or spare parts.
The amount of LC after very long wait is also unsatisfactory compared with the production capacity of industries that they claimed push the production cost very high and make it uncompetitive compared with similar industries unless they are FDIs.
They claimed that some of the manufacturers have closed their business and others reduced the number of workers due to this uncompetitive condition and lack of inputs for their production.
The sector actors frequently claimed that the NBE directive is issued against the investment proclamation, which was 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 classify local and foreign investors,” they told the government.
They also stated that the Investment Commission has a stand that the investors local or international ones should be treated the same.
NBE amended the 2002 ‘External Loan and Suppliers’ Credit Directive’ in September 2017. The amended directive added an article that allows foreign investors to access suppliers’ credit.
Those who have the right to use the supplier’s credit scheme will be able to get foreign currency right away when they go to banks, while others including local investors, which are invested in s similar sector as foreigners, are expected to wait the line at the banks to get foreign currency on letter of credit (LC) scheme.
Some of them argue that the government has a policy to encourage FDI that they supported but argue that the law should give equal space to all investments.
Financial experts 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.
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.
Recently the government stated that in the past three quarters of the budget year the government allocated USD 6 billion for the private sector. However local manufacturers argued that from the stated amount the local investors may access only six percent or USD 300 million that the USD 200 million recently released by Commercial Bank of Ethiopia and USD 100 million via private banks for the first time.
MoTI sides with local investors against supplier’s credit
Nile staff under fire for fake insurance claim
Seven employees of Nile Insurance Company’s head office are being investigated by the Nifas Silke Lafto Sub- City Police after 47,000 birr went missing from their Abyssinia Bank account in an attempt to forge claim payments.
There are five male and two female suspects. Two resigned after the incident which occurred two months ago, according to the company.
According to the police report, someone filed a false claim saying a car which was covered by Nile through third party insurance was involved in an accident near Wolisso town and a payment was made as a result. However when the company investigated the claim, they discovered that the car had not been in an accident and that the letter and ID used to withdraw the money was fake.
Benalf Mekonen, Resource Management Head at Nile Insurance told Capital that they are auditing all claims made in the past year.
“We are shocked by the news because we are a leading company in the private insurance business in Ethiopia. Normally claims under 50,000 birr are handled by the lower management. In this case we asked the insured party if their car had been in an accident and if they had filed a claim and they had no idea what we were talking about. So we became suspicious about our staff and police are investigating.”
“We are also dedicating a department to investigate all claims in the last year” he added.
Capital asked Hadush Hintsay, Secretary General of the Ethiopian Insurance Association about the incident. “I can’t comment on this news but the entire financial industry needs to work together to fight fraud.”
Nile was established on April, 1995 with a capital of birr 12.5 million. Over the past years, the company has grown from birr 12.5 million to 302 million birr capital, from 26 to 124 shareholders, from 4 to 42 branches both in the capital and regional cities and has more than 45,000 customers across the country. The total asset of the company has reached birr 734 million.
Public-private partnership in store for Addis rail line
The Ministry of Finance plans to engage in a public private partnership (PPP) engagement in railway infrastructure with domestic and foreign investors. The sector bankrupted the nation by swallowing extra expenses so that the revenue didn’t even cover its operation cost.
The government is working to tackle the distress quickly by reforming policy through technical support from the World Bank, Ahmed Shide, Minister of Finance said.
The Ethiopian government provided 15 percent equity for the Addis Ababa Light railway transit (LRT) project and China’s Export-Import Bank, an arm of the Chinese government, paid for the rest of the USD 475 million cost aiming at solving Addis Ababa’s transport problems which was completed earlier in 2015 as the first fully-electrified line in Africa.
Addis Ababa-Djibouti cross-border electrified standard gauge railway that runs over 700 km is another project which is funded by Exim Bank. It is part of the Chinese Belt and Road Initiative.
“We need to further strengthen our capacity in planning, implementation, and maintaining various projects as well as expanding existing projects, and building new partnerships to realize our ambitions,” the minister said to lawmakers.
“The aim of the PPP is to expand public services, reduce project delays, and increase resource utilization and minimize debt stress,” said Haji Ibssa Corporate Communication Director at the Ministry of Finance.
The country’s external and domestic accumulated debt hit 27 billion USD which funded different projects including the Addis Ababa Light railway and the Etho- Djibouti railway.
According to the Ministry of Finance, 9.4 billion birr is paid for external debt in this nine months of the budget year.
Presenting opportunities for public private partnership (PPP) to take part in railway and other projects requires study and analysis as we are entering the scheme for the first time Hajji adds.
The decision to liberalize the economy and privatize state-owned companies in telecommunications, aviation and banking, Airlines, Ethiopian Shipping & Logistics Services Enterprise and Ethiopian Electric Power as part of Prime Minister Abiy’s reform is underway by establishing technical and steering committees under the Finance Ministry, as well as a macro committee under the office of Prime Minister.
Currently there are Public-Private Partnerships wroth USD 7 billion in three road and 14 power supply projects.
Condos being rented as guesthouses, offices
Exact numbers are unknown, but several condos in Gerji, Lideta, Baldras, Goterra, Summit and Basha Welde are providing guest house service for diaspora and foreigners and charging between 13,000 and 18,000 birr a month.
According to a survey by Capital, the guests in these condos stay from one week to three months. The houses come fully furnished and have working facilities. Ethiopian law requires a competency certificate from the Culture and Tourism Bureau to open a guest house. An unlicensed guest house can result in a fine or closure.
However, due to low supervision from the government and the high cost of hotels and guest houses, people choose condominium houses to get a better deal. This has raised concerns about safety and standards of accommodation.
The condos which were first built for middle and lower income people are also being rented for office space.
Capital asked Kassuan Abera the Trade Regulation Head at the Addis Ababa Trade and industry Bureau what the government is doing about this situation.
“When someone rents a house they don’t need a license as you do for a guest house so many people are doing this and then lying about what the property is being used for. They will say they are renting it to a friend so we have a hard time combating the problem, our plan is to work with the Cultural Bureau.”
According to Abebe Sahlu, Legal Officer for the Addis Ababa Tourism and Culture Bureau the illegal guest houses in the condos are the result of misdirection.
“Some people come to our sub city offices and ask to open a guest house in the condo but we tell them that the condos are for living not for hotel or guest house services but some of them neglect this and start the service without permission, This is absolutely wrong and all stakeholders should work to stop this.’’
A consultant in the tourism and hotel industry urged the government to regulate the sector properly.
Kumneger Teketel Director of Ozzie Business and Hospitality Group said “when something is done in the hotel or guest house sector it must be regulated and it must be taxed otherwise legitimate businesses will be discouraged.’’
