The government via its financial giant, Commercial Bank of Ethiopia (CBE), has released highly anticipated hard currency to the manufacturing industry. However, it’s less than what is needed, Capital has learnt.
Sources close to the industry disclosed that last week the state bank sent the letter of credit (LC).
According to the information Capital obtained, the sum of USD 500 million has been released for those engaged in the industrial sector. Sources said this time around the LC was not available for finished goods importers.
The latest release is the second time within almost six months after the USD 300 million was approved in March.
Even though this is a positive first step USD half a billion is much smaller than the demand, according to sources.
Experts in heavy industry told Capital that the amount is relatively high compared with the March disbursement; but it is still very small compared with the expectation and may be used to import a limited amount of inputs for several weeks of production with up to 20 percent production capacity.
In March 2017 and a year before the bank released about one and two billion USD respectively to fill the demand of the industry but the latest trend indicates that the amount has declined.
The shortage of hard currency has forced manufacturers to operate at 10 to twenty percent capacity.
Some of the companies have also closed their industry due to insufficient hard currency access. “The situation has forced business to close and some are just paying salary to employees,” an industrialist, who wanted to be anonymous said. “The industrialists want to fire their employees but are afraid of the community, who may become angry about the situation and damage the factories,” he added.
The production cost has also increased because manufacturers are fully employing people but making less, according to experts. Finished goods importers have taken advantage of this since they are selling products at higher rates but importing similar products at cheaper rates, experts said.
Even though the National Bank of Ethiopia issued a directive a few years ago forcing banks to allocate hard currency on a first come first serve basis and an additional directive on allocated 40 percent of the hard currency for the manufacturing sector this is not often followed by private banks.
Experts said that currently the business community is focusing on importing finished goods. “If you see the cargo containers in Djibouti now almost all are finished goods and even the coming vessels are loaded with finished material, which is a trend that was seen about 15 years ago,” an expert in the manufacturing industry claimed. Relatively exporters have better options to get hard currency but most of them are importing finished products, experts claimed. They add that this harms the manufacturing industry.
Recently the Ministry of Industry has asked manufacturers to come up with their demand and real production capacity, because the current allocation is far from what is needed.
Prime Minister Abiy Ahmed (PhD), recently secured USD one billion in cash from UAE and has worked to get more foreign currency by combating illegal exchanges.
USD 500m released to manufacturing but factories still thirsty
Homebuyers committee cries foul as Court allows eight to purchase Access land
Eight people purchased 4,133 sqm of fenced land belonging to Access Real Estate in Bole, at the back of Hayat Hospital for 91 million birr after one home buyer sued the real estate company in order to get his money back. Previously the land was being managed by a land bank for special protection.
Derje Mekonen who paid two million birr to Access expecting them to build him a house which never materialized, sued the company and eventually a court ruled in his favor and ordered one of the Access properties sold in order to compensate Dereje for his loss.
The land was originally bought by Access at a cost of 150 million birr from the city municipality. Access was expected to build 160 homes on that site.
Capital attempted to speak with the Addis Ababa Land Management Bureau about the issue however they were unavailable because of meetings on suspended land services and auctions.
Not all home buyers are happy with the action taken by the court and Dereje however.
Aklog Seyoum, who heads the committee of Access home buyers told Capital the the way the land was sold was completely unfair and illegal.
“The land belongs to the home buyers because 150 million birr was already paid for it and in addition it was returned to the land bank until the problems Access was having are resolved so I don’t understand why the court ordered the land to be sold in order to compensate a few home buyers.”
According to Aklog the committee sent a letter to the Prime Minister’s Office asking for assistance with their case.
“We have high hopes with the new PM’s Administration. For the last six years we have gotten nowhere. The 2,500 home buyers paid 1.3 billion birr for their houses that never appeared do the money was wasted for nothing. We demand justice and want our houses. We also want the people who gambled with our money punished. I believe Prime Minister Abiy (PhD) Ahmed will come up with a solution for us.”
No home has been transferred from Access to buyers so far.
According to its audit report, Access has transferred over a quarter billion birr to related parties or companies. Seven partners have gotten loans amounting to nearly 146 million birr from the real estate company. From this amount, Access Capital Service received the majority, followed by Pacific Link Ethiopia, Pioneer Agro Industry, Meri Real Estate and Mechot Real Estate. Access Capital was formed and lead by Ermias Amelega, who is a major shareholder and founder of the company. Access Real Estate, received a loan of close to 131 million birr and four other companies secured from 43 million to 22 million birr respectively.
The audit report carried out by the Audit Services Corporation and submitted to the Ministry of Trade on April 7, 2017 indicated that the company had collected 1.3 billion birr. The major share or 1.16 billion birr came from home buyers, according to the independent audit report which also said that the company made an initial payment of over 178 million birr to six contractors.
From the stated payments 135 million birr went to a single contractor called Living Steel Construction and 26 million birr went to Yibel Industrial, according to an audit report Capital obtained.
It added that the company has settled a payment with several individuals, but did not say why. According to the audit report, Access Real Estate has paid 59 million birr to Ermias, founder, board chairman and the first CEO of the company.
Other prominent business individuals and organization leaders were also paid. Generally the company has forked over about 125.4 million birr to these individuals.
The audit report indicated that the company has spent 272 million birr to procure assets. The other major expense in the audit report was constructing homes and shops at the Gabi Investment Site, amounting to 194 million birr. The report also listed 130.4 million birr in additional expenses.
Trash to power
The Reppie Waste to Energy Project located in the Capital City’s main landfill has been inaugurated.
The green energy power plant, which converts waste into a potential 25MW of power, took four years to finish and cost 2.6 billion birr, according to Azeb Asnake (Eng), former CEO of Ethiopian Electric Power (EEP).
It was built by China National Electrical Engineering Company (CNEEC), while the feasibility study was done by the UK’s Cambridge Industrial Ltd, which is also the EPC constructor of the project.
The turnkey project involved many sub-projects including power generating steam turbines and generators, construction of the main building, a tipping hall, a waste bunker, a boiler hall, a power house, a main control room, leachate treatment, and a flue gas treatment plant. It was paid for by public money.
The former CEO stated that the residue of the burnt waste, fly ash and bottom ash will be converted into inputs for other industries. She said that the bottom ash will be supplied to cement industries to produce low heat cement material, needed for the construction sector when they build dams and bridges. Currently cement factories import bottom ash to make low heat cement. Fly ash will be used to make bricks. Three million bricks can potentially be produced from the ash per year. Brick production is part of a youth employment program. The facility can also supply 3.6 million tons of scrap metal to steel companies by using magnets to separate metal parts.
The processing plant will also produce 30 million liters of treated water for washing roads and planting trees.
The Reppi landfill also known as Koshe has been in existence four decades. The plant is the first of its kind on the continent. It will use 1,400 tons of waste per day to generate power. The waste pit can hold seven days of waste.
Currently EEP, which is responsible for construction of power plants, high voltage transmission lines sub stations, and exporting power, is spending 350 billion birr on power projects.
By the middle of 2020 or the end of the GTP II power generation is slated to increase to 17, 000MW from the current 4,300MW.
Black market rate back on rise, contraband cash increases
The black market exchange rate has rebounded and is now going up after a decline to near bank rates during the last month.
Starting June 30 after some major actions taken by Prime Minister Abiy Ahmed (PhD) the exchange rate on the black market slightly decreased from its record 36 percent difference with the bank rate, which is currently around 27.5 birr to one USD. After the PM’s announcement that the government would take actions against illegal trading and pleas for the public to exchange money in banks, trading on the black market almost disappeared temporarily.
Dealers at the illegal market told Capital that the rate is now reviving. They say it is now around 32 birr per one USD which is almost 17.2 percent higher from the legal market or about a 4.7 birr difference. Illegal exchange dealers, who refused to be named, said they don’t make decisions about the exchange rate.
“We raise the rate based on the recommendation from secondary collectors who take orders from tertiary collectors,” the dealers told Capital.
“Based on the orders from final collectors we come up with a rate and it has now reached to about 32 birr,” they said.
In Addis the major primary hard currency collection centers are located around Beherawi (Gandhi), American Gibi (Merkato), Bole and Bole Michael.
The business is highly based on trust.
According to experts the rate went down because of the crackdown on the contraband business which was occurring in the eastern part of the country. Most foreign currency travels out of Ethiopia’s eastern border but some flies out of the airport. Often legal importers use the illegal collected hard currency to import products when they have a hard time getting currency legally, according to experts.
The current increase indicates that to some extent new contraband routes are being opened and at the same time illegal traders have figured out how to get around check points at the border or the airport, experts said.
“At the same time the hard currency shortage has not improved so things will return to business as usual and we will see similar trends that occurred before July,” experts said. The government will continue to try and stop illegal trading even though it may be difficult to fully cut, according to experts.
Before the government devaluated the birr by 15 percent on October 11, 2017 the black market rate stood around 27 birr for a USD. Immediately after the devaluation, however, it escalated to 33 birr. For a long time it was about 25 percent higher than the legal market. However, in the past few months the parallel market frequently increased and the gap with the bank rate widened up to 36 percent and stood the FDI also buy hard currency from the black market.
When the PM announced that his government would take action against the illegal business more people exchanged with local banks and over USD 100 million was collected in the past few weeks. On the other hand at the airport and Somali border region there has been a large amount of illegally transported hard currency. For instance according to recent reports a significant amount of foreign and local currency was confiscated at the Bole Airport.
