Representatives from Ethiopia’s manufacturing industry claim that a shortage of hard currency has led them to produce under their capacity which has caused a chain reaction where production costs have risen, prices have increased and the economy has slowed down.
The nation’s Forex shortage over the last few years has seriously affected private sector activity.  This has not only negatively affected import businesses in all areas, but is especially true in the manufacturing sector with small scale businesses and heavy industries.
In the past, to address the problem the state owned financial giant Commercial Bank of Ethiopia (CBE) allocated a limited amount of hard currency so the manufacturing industry could import inputs and spare parts.
Last week CBE released USD 300 million to the private sector leaving investors puzzled when they learned of the amount during the latest letter of credit (LC) process. This is the first time in a year that any significant amount of hard currency had been released by CBE.
Over the past several months some industries were forced to suspend production as they could not get adequate materials to manufacture their products while others were producing far less than their potential, according to people working in the industry.
“We have a company which makes construction materials but it hasn’t been able to operate as usual because we don’t have enough of the imported materials, such as chemicals, that we need,” said one investor. He claims has been forced to pay salary to his employees for over two months now without operating.
Experts in the banking industry stated that the long awaited LC approval from CBE has shocked the private sector. They think that USD 300 million is a very small amount to be shared among investors who for instance manage over 3,000 employees in a single factory.
The foreign exchange application is said to be in the billions at the CBE but only USD 300 million has been offered as of last week. “The highest amount awarded per applicant is no more than 100,000 USD; many could only get as much as 30,000 to 40,000 USD for their long standing application for foreign currency,” a financial institution source added.
Experts said that some of the companies need more than one billion birr in hard currency (one USD is equivalent to around 27.5 birr) for a single industry, and the current forex is allocated to the manufacturing industry only.
Investors in the sector told Capital that the current hard currency allocation will only allow their plants to run for not more than two weeks.
“What is happening today is  that people who rely on imports for their primary business are entering the export business simply to secure foreign currency, which they can use for their imports,” a financial sector expert said.
“This dire need has led to corruption in the banking sector because people are selling their forex for at least 5 birr per dollar in addition to the standard exchange rate. People with dollar accounts in the country are said to be selling their foreign currency just like on the black market,” he added.
Investors say that the hard currency shortage is affecting the entire economic structure. “The shortage of inputs has forced us to operate under capacity which has escalated the production cost,” a manufacturing plant owner told Capital.
“We are running up to ten percent of our capacity, it is better if we at least run at half of the capacity,” he added.
Experts said that the current LC approval from CBE would allow factories to run from one to ten percent of their actual capacity.
“The production cost for a factory run at ten percent capacity or 100 percent is similar since it uses the same machines, manpower, energy, spare parts, bank interest and other operational expenses, that lead to high production cost when companies run under their capacity and this makes the end product very expensive,” they said.
“As a state we are losers if we do not operate our industries at least by 75 to 50 percent of their capacity,” an expert said.
Producing under capacity will create high inflation. Meanwhile the central bank has taken several measures to reduce the money circulation from the market. It introduced various policies and rules like the recently applied directive that forced the outstanding loan disbursement of banks to grow by only 16 percent compared with the performance a year ago.This occurred after the devaluation that the government applied on October 11 to control potential inflation that might follow the reduction of birr value by 15 percent against major hard currencies.
At the same time experts argued the devaluation is being implemented at the wrong time. “It has been applied when there are not sufficient resources or inputs for industries,” said an economist requesting anonymity. He argued that devaluation would work when there are ample inputs or resources like intermediate goods and capital goods in the country. “The manufacturing industry that engages in import substitution can cover about 60 percent from local sources because the resources from local sources are very limited. The balance of resources may still need hard currency to import,” he added.
Effect on industries
“The country is experiencing a dire problem, business is really strangled,” said Zafu Eyesuswork Zafu, founder of the United Bank and the United Insurance Company.  But none of this is a surprise; it has been forecasted for a long time now, he said.
Many businesses are now returning back their licenses, as they are not able to sustain the situation, according to the financial expert. “This situation is symptomatic of a very critical juncture in Ethiopia’s foreign exchange situation,” Zafu said. It is very sad and cannot continue like this. It is very concerning for the country.
Experts said that the underproduction in the manufacturing sector may not only influence the market price but can also affect the country’s general economic activity.
Company owners said that they are undertaking their business with a large amount of capital they have secured from financial firms. “If we cannot manage the business as per the expected capacity the effect will force us to fail to settle the huge amount of bank loans,”an expert on business administration explained.
The expert said that the supply of capital goods has been suspended in the past several months which affects the supply of intermediate goods from heavy industries for some factories, including small scale industries that use what they make as an input for their final product.
“It will hence be difficult for manufacturers to settle their debt without production,” he added. He explained that this would force banks to foreclose on the industries but they won’t get potential buyers because there will not be a capacity to buy such kind of industries and  no one will be interested since the situation would be similar for the new owners.
If banks are unable to collect loans, financial institutions could end up operating in the red. If industries that owe a lot of money to banks run under production it will transfer to an industry crisis – financial crisisand country level economic crisis  in the near future unless the government provides adequate attention and solutions for the situation,” experts said.
“Besides effects on companies, the government’s tax collection would be significantly affected because most of the manufacturing industries contribute significantly to the economy,” a person who manages over ten businesses said.  “The effect is not only seen in the manufacturing sector; it has also been observed in other areas; for instance, if you see the number of companies that are not renewing their business licenses the number is not small,” he noted.
“The government has to give recognition to the private sector and facilitate conditions as one of the economic pillars for the country; the same attention that it gives industries,” a part-time management lecturer and business owner said.
Recommended solutions
Most experts and the private sector actors agree that the current challenge may continue at least for the coming couple of years unless the government takes immediate action.
“The situation is so bleak there doesn’t seem to be any light at the end of the tunnel,” Zafu opined.
He said that the solution to start with is for the government to support the private sector development and make it a partner. “Its role (private sector) is minuscule today. It needs to be supported to enter the export business,” he added.
The private sector has played a significant role in boosting the economy and creating more jobs, in this regard it shares the government’s burden.
An expert in the manufacturing sector also claimed that the public projects are taking the major portion of the regular hard currency earnings of the country. “As we understand most of the public projects are not finalized as per the schedule or with very significant delays, while they have consumed an overwhelming amount of capital resources,” the expert said.
He recommended that the government evaluate its policy on public projects and reconsider the expenditure and allocation of hard currency based on the required priority.
“It (Government) could postpone some of the projects and sustain the private sector before the current hard currency problem transfers to a bigger crisis,” he recommended.
“I have always said you cannot do everything at the same time,” Zafu told Capital. “As the old saying goes, ‘you do not try to go up two trees because you have two legs.’”
Zafu explained that the public projects have played a major role in the economic growth that the country registered in the past, but the private sector that has the capacity to contribute its part is not getting the required attention.
“State led projects such as in the energy sector contribute significantly to the country and economy but it would be difficult for the government to run all of them on its own. We believe that the government has to give a stake in the economic growth to the private sector,” he said.
Experts said that the government needs a policy shift to settle challenges on hard currency earnings and disbursement. They say the recent CBE hard currency distribution is ‘peanuts’ compared to the demand.
If the government can’t postpone some of its projects it could also look at other options based on other countries’ experiences.
Experts also argued that the government’s behavior of getting involved in different economic areas has to be stopped. “It has an interest to engage in all areas of investments like the assembly of electronic materials and some other sectors that only need a little effort and can be handled by small scale industry operators,” the business administration expert explained.
An economic expert gave the example of Turkey. “When turkey faced a crisis in 2001 it used the resources from the International Monetary Fund to recover again. Ethiopia should use such kind of sources instead of retreating,” he said.
The government is not afraid to negotiate about such kind of capital injection from international sources, according to experts in the manufacturing industry. “It’s all about negotiation and coming up with a better understating with international financers to use foreign money instead of getting into a crisis,” the economic expert added.
Sources said that recently some international financial firms have approached the government to provide credit to alleviate the hard currency shortage but the government’s response is unknown.
Most experts and business operators also place a priority on political stability. They said that the recent instability has played a crucial role in slowing down the business transactions and affecting the economy.

Oromia International Bank, which participated in the 40/60 condo shop tender offered 171,005 birr for one square meter to buy 155.9 square meters of land for a single shop located at Senga Terra. The bank will pay 26.659 million birr to the Addis Ababa Saving House and Development Agency after it signs the contract. This price is the estimated cost for the entire building.
Selmawit Kahessay offered the second highest amount at the tender by offering 171,001 birr per sqm to buy two condo shops in Senga Terra which have areas of 108.7 and 86.7 square meters. Selamwait will pay 33.4 million birr to the Enterprise for the two shops.
The first of its kind 40/60 condo shop tender was opened from last Tuesday through Thursday and attracted 4,200 people. However, only 858 of them made actual bids on the condo spaces.
A total of 305 condo shops were prepared for tender. The floor price was 19,634 birr per square meter and the minimum price given at the tender was 19,673 birr per square meter.
Most of the winners offered between 30,000 to 40,000 birr per square meter. Some of the vhighest prices were offered by the banks.
The shops are located in G+12 and G+19 buildings in Senga Terra and Crown sites on the ground, first and second floors.  From the shops 110 of are found in Senga Terra and the remaining are in the Crown sites.
They are from 62 to 155sqm and have communal toilets, marble stairs and emergency exit doors.
A water tanker which can hold 300 liters, a common satellite antenna, an eclectic and telecommunication line are also being installed in the shops.
The area also has a parking lot for 80 vehicles on each block. This shops were constructed together with the 972 houses that were recently transferred to the winners of the 40/60 condos.
Currently, 39,000 condominium units are under construction on 12 sites and 18,000 are expected to be completed in one year. They are located in Gerji, Bole Bulebula, Hayat Meri and Summit. More than 139,000 people are on the list for these houses. Last week Capital reported that Ambasel Trading House PLC, a subsidiary of TIRET development organization, which exports agricultural products, offered the highest price,72,800 birr per sqm, during a tender auction for A 20/ 80 condo shop located at Ledeta.

Djibouti is under negotiation with a French company to diversify its logistics partners from the east to west.
Recently officials at the Djibouti Ports and Free Zone Authority (DPFZA) told Capital that the government of Djibouti would use more partners for the upcoming mega logistics projects.
Early this week the Chairman of Djibouti Ports and Free Zones Authority (DPFZA), Aboubaker Omar Hadi, stated that Djibouti is working with French shipping company CMA CGM to develop a new container terminal at an initial cost of USD 660 million.
If the two parties conclude their negotiation it would be the first western company to be involved in the investment of the logistics sector in Djibouti. Previously the UAE company, DP World followed by the Chinese giant China Merchants Holdings, invested in the port development project in partnership with the government of Djibouti.
After the decision of the government of Djibouti to terminate the management deal of Doraleh Container Terminal with DP World, western powers expressed their concern in terms of their logistics activity for their military bases if the Chinese company takes over the management of the container terminal; so the latest report would be a relief for them.
In February, Capital quoted the DPFZA Chairman that the country plans to launch the construction of the Djibouti International Container Terminal (DICT) along with some other mega projects.
DICT will be the main project as it would exceptionally boost the country’s exclusive container port terminal facility.
This new facility shall be erected between Doraleh Container Terminal, which has changed to the name Doraleh Container Terminal Management Company, and the recently inaugurated Doraleh Multi-Purpose Port (DMP) with a natural water depth of 18.5m. DICT’s total investment is tagged at USD 660 million.
The upcoming additional container will have a capacity 2.5 million TEU containers in the first phase.
Aboubaker told Reuters on Tuesday that the authority hopes to award the concession to the French company in July.
The new container terminal project could break ground as early as September with construction expected to take 24 months, Aboubaker said, speaking on the sidelines of the Africa CEO Forum in Abidjan, Côte D’Ivoire.
The French company will have a 15 percent share on the DICT. According to the plan, fifteen percent of the project’s cost will be financed through equity. Of that, the DPFZA will contribute 85 percent, with its concession partner providing 15 percent. The rest will be raised via international institutions and banks.
The other project that is expected to be launched in the current month is the construction of Ship Repair and Dry-docks, which will consume USD 200 million, according to the document that Capital obtained from DPFZA.
Djibouti Damerjog Industries Development (DDID) is also the other huge project that the Djibouti government plans to undertake in the near future.
The DDID project will have a multipurpose port, livestock terminal, a refinery, storage tanks, dry dock, gas complex and its jetty, and jetty for refined oil and for crude oil.
A few years ago Djibouti planned to construct the livestock port at Damerjog, a place that is close to the border of Somaliland in the south of Djibouti, but it has been revised with additional massive development facilities.
As per the plan the DDID will have a multipurpose port that can accommodate all kind of cargo including bulk and containerized. The livestock port which is targeted to solve the problems of livestock exporters from Ethiopia will be constructed with the goal of modernizing and boosting the cattle export of Ethiopia.
At the same time the complex port and additional facilities will also include several projects that are directly related with natural gas development and export from Ethiopia.
Even though the DP World agreement was terminated last month Djibouti has been able to expand its partnership and the confidence of foreign investors. Recently DPFZA signed a deal with the Singapore based shipping company, Pacific International Lines to raise the Doraleh Container Terminal Management Company, the former DCT, and cargo handling by a third. The container terminal has a capacity to handle 1.8 million TEU per annum. If the negotiation with CMA CGM is finalized it would be the second biggest deal after the contract termination with DP World.

Weeks after getting out from six years in prison, the popular journalist, Eskinder Nega and the politician Andualem Arage were arrested last week and are now being held at the Nifas Silk Police station. The arrest occurred during a ceremony in Jemo at Journalist Temesgen Desalgne’s home. Temesgen is also under custody.
Along with Eskinder, blogger, Befekadu Hailu, Mahlet Fantahun,Woinshet Molla, Adissu Fantahun, Adissu Getahun and Zelalem Werkaggnew are also in custody.
A friend of Eskinder told Capital that they still do not know why the police arrested them.
“Temsegen invited some people to his house for a welcoming ceremony after they spent six years in jail, however the police came and arrested them.”
In an interview with VOA Eskinder Nega’s Lawyer said that the Police are saying that the arrested group gathered outside which is prohibited under the current state of emergency and they displayed flags with no star in the middle.
He added that their case will be handled by the command post special court.
Protests and group gatherings are banned under the state of emergency and security forces are instructed to take action against people disturbing the peace. A special court has been set up to prosecute people who incite violence as well.
In recent interview with Capital, Andualem opposed the state of emergency by saying that it is not a real solution to curb the current problems of the country.
“It is a paradox for me. The government should open wide discussions with the people to understand the reasons behind the protest, the logic behind the unrest. Without providing a solution applying a state of emergency is moving the people from the dark to another dark place. It is about time to call all stakeholders who are concerned about their country to provide solutions,” he said.
Eskinder also agreed with Andualem’s opinion.
“It may handle problems for a temporary relief but like I said before there must be negation between parties and the government. I agree with the US Embassy’s stand against the state of emergency. The problem is here is a political problem not chaos and it must be solved through a political decision not by a state of emergency.”
Eskinder won awards from the International Press Institute (IPI)’s 69th World Press Freedom Hero, Golden Pen of Freedom, and PEN/Barbara Goldsmith Freedom to Write.