Financial industry pundits are recommending that the government reevaluate the suppliers’ credit scheme which excludes local investors and instead give priority to foreign companies. They say getting the letter of credit up front breaches the first come first serve directive of National Bank of Ethiopia.
The banking industry leaders that have links to the local and foreign based businesses, and FDI, argue 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.
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 that applied without the consultation of them to settle the payment with maturity date. “It has forced the banks to face a default risk which affects the country,” he said.
The supplier’s credit by itself is given priority to the clients who are allowed to access the scheme and not those who registered and are waiting to get the LC.
“When the banks secure hard currency they focus on settling the credit rather than approve the LC for its other clients who are not included on the supplier’s credit scheme, which is also another effect on local investors,” Dereje Zebene, President of Zemen Bank said.
Concerns are also being raised by experts that the scheme is genuine or free from any misbehavior. “It has to be cross checked whether it is a genuine supplier or not, besides that the cost includes hidden expense like interest,” they stressed.
The sector actors stated that the supplier’s credit might also promote the parallel (black) market. “We are seeing that sometimes their supplier’s credit is processed from Djibouti. Who is there in Djibouti?” bankers that Capital spoke questioned. They noted that the imported items have already reached Djibouti by those who have a stake in the parallel market.. They said that it may show that illegal actors are using this scheme to abuse the legal market.
“It is obvious that those who have advantage in the supplier’s credit scheme are enjoying the market without competition from other local producers,” Asfaw Alemu, President of Dashen Bank told Capital. “This system has also forced the local producers to be excluded from the market and suffer from bankruptcy due to several expenses including overhead cost and salary for employees that are difficult to avoid,” he added.
“If they have debt in banks they will also be unable to settle their credit, which forced banks to seize the assets. But it needs adequate data to speak on it and indicate the effect on companies and at the same time on banks,” Asfaw explained.
“When this kind of crisis occurs it becomes difficult for banks to sell the assets of defaulted investors since there won’t be real buyers because all banks have assets to sell out,” Dereje said.
When local investors, who have thousands of employees, layoff their workers, it will also affect the social structure, according to experts. “The supplier’s credit scheme that excludes local investors will also allow foreign companies to be the major market actors, which is against stand the national identity,” one banker said.
“It is not acceptable to exclude local companies to access foreign currency in the scheme,” another banker added.
Addisu Haba, President of Ethiopian Bankers Association and Debub Global Bank, told Capital that the local banks do not have a problem with the local currency to settle the credit. “But the scheme has forced banks to pay the supplier’s credit with foreign currency which is highly scarce when the maturity date comes,” he said.
“If the foreign companies who are engaged in export it would be acceptable but the supplier’s credit scheme includes all actors who sell their products locally or export them,” the association head said.
“Since the government endorsed the new directive we did not facilitate LC for clients coming in the usual trend,” a bank president who did not want to be named said.
“Since I gave the suppliers credit I have to also settle the payment when the maturity date comes. So it will be difficult for my bank to approve other LCs since the priority is for credit settlement,” he added.
Another banker also argued that the credit scheme has escalated the shortage of the hard currency. “A hard currency shortage at banks is observed,” he argued.
He also stated that local investors who already borrowed a huge amount of money from local banks have defaulted since they could not produce and cover their costs and other required settlements including scheduled debt payment.
It has been reported that in the past fiscal year the percentage of banks with non-performing loans (NPL) has grown compared with the previous trend, but banks declined to verify this.
Addisu said that members of the association did not discuss the issue. “It is difficult for me to comment on it since I do not have organized data,” he added.
A president of one of the oldest private banks told Capital that as per the NBE law his bank has given priority to clients that have a support letter from NBE for the scheme of suppliers credit whether it imports priority items or not.
“Local companies that have a support on priority criteria of NBE would not get priority because we don’t have adequate resources and give prime service for clients with supplier’s credit,” he said. “If the supplier’s credit had not come into effect we would serve several clients who are waiting in the queue,” he added.
The bankers said that they tabled the challenge for the new governor, Yenager Dessie (PhD), during the one to one discussion with every bank leader, but they said that the new governor needs more time for change.
Most of the bankers agreed that the supplier’s credit has affected their businesses. Besides that they insist the government should open the hard currency allocation as opposed to strictly controlling it. The government has put the first come first serve into priority sectors but it is not effective.
Reform supplier credit schemes, bankers say
Program ratified to improve logistics
The first National Logistics Strategy to bring the sector up to international standards has been ratified by the council of Ministers.
It has spent three years in the pipeline as it has undergone evaluation.
Eshetie Assfaw, State Minister of Transport, told Capital that it is the first time it has been ratified by the council, even though it has been studied by many different agencies.
The major points mentioned in the strategy is improving the sector to international levels and in an organized manner.
“Previously we have tried to improve in an uncoordinated manner. But this one will include all actors under a single strategy and we will work on making positive change,” Eshetie said.
The strategy that would target improving the logistics scheme, which is considered to be the major challenge for the sector and economic growth, has several details, according to the information that Capital obtained from the Ethiopian Maritimes Authority.
The international customs clearance that was undertaken separately is one of the major criteria to move the logistics sector in a positive direction. It, along with harmonizing infrastructure services is also being included in the new strategy. The shipping operation and standard logistics handling and packaging, and automated follow up of cargo transportation are also being considered in the strategy.
The State Minister said they also want to reduce the time it takes to transport cargo.
Experts say that another area slated for improvement is to link relevant sub sectors.
The logistics sector, particularly the import/export stream, is said to be one of the hurdles that slows down the country’s growth. The Ethiopian government has been undertaking several restructuring measures while at the same time expanding and modernizing infrastructure. Despite the efforts, the sector is still in its early stages compared to international practices.
The national logistics strategy document that was developed by Nathan Associates Inc. a US based company, with the
WARYT to open mattress factory in Adama
Through a joint venture with an Oman company named Raha, local WARYT Plc will open a mattress factory in the next six months.
The joint venture factory dubbed ‘OMETZ Furniture Manufacturing’ which is on 60,000sqm of land will produce 40,000 mattresses per year.
The factory which will consume 8 million birr will source 50 percent of its working materials from the local market.
The Oman family business company has been manufacturing mattresses for hotels and households.
Tihetena Legesse, Managing director of WARYT told Capital that the new factory will create jobs for 100 people.
“The work force will increase as we increase our production and use local products. We plan on making inner spring and foam mattresses. Soon we will install the machines and get to work.”
She added that the new factory will consider manufacturing pillows and furniture products later.
“ We can import finished mattresses from abroad but that is not our plan, we need to produce in the local market to save foreign exchange and to reach our immense potential .’’
Two basic types of mattresses make up the vast majority of the todays’ market: The innerspring and memory foam. Made of steel coils, innerspring is, by far, the most common type. Memory foam, on the other hand, is made from polyurethane or latex foam, and is very dense foam
WARYT is widely known for its manufacturing, import and distribution of household and Office Furniture, Home Appliances and WARYT CERAGEM.
Waryt Mulutila International plc, also delivered materials such as bonding straps to Muday Charity Association. They also have made bags and helped some school children between 2 and 12 to obtain school supplies in collaboration with Mary Joy Development Association to help and facilitate their school needs.
Licensing coming to Poultry farms
To ensure good farming practice and regulate the growth of the poultry industry, the government may implement a license for poultry farms. The license to produce chickens consists of several rules and regulations regarding distance to other farms, infrastructure, water supply, electrical power, management, knowledge and, biosecurity measures.
The new strategic plan which is under consideration by the government and being studied by Ethiopia Netherland Trade for Agricultural Growth (ENTAG) would identify and register farms and flocks .
To promote quality products the strategic plan aims to clearly register the production types (layers, broilers, reproduction) concerning the facility, hygiene management and registration.
To upgrade the veterinary services the strategic plan also targets establishing a poultry health expertise center.
Currently around five large scale and over a hundred medium poultry farms are operating in Deberzeith which has suitable temperature for chicken but poor awareness, disease, and poor infrastructure a challenging the business
Dr. Demeke Wondemagne president of the Ethiopian Poultry Producers Association (EPPA) told Capital that the strategy will help the country do a better job in the poultry sector.
“We can’t bring big change with the traditional system. We must update our farms with better technology , animal feed, veterinary service, a market and good coordination of stakeholders and I hope the strategy will help us to address these challenges.’’
According to a 2013 Central Statistical Agency report, Ethiopia has about 50.38 million cockerels, pullets, laying hens, non-laying hens and chickens.
Ethiopia is the 14th most populous country in the world. However, according the Food and Agriculture Organization of the United Nations (FAO), it produced only 60,000 tons of poultry meat in 2012. Annual per capita poultry meat consumption stands at only 0.6 kg, while annual per capita egg consumption is 0.40 kg.
From the total 60 million chickens only 18 million hatch eggs, almost all, 94 percent of Ethiopia’s poultry are raised traditionally and last year 1.4 billion eggs were produced.
