The Ethiopian Association of Basic Metals and Engineering Industries (EABMEI) has expressed its concern to the Office of the Prime Minister and Industry Standing committee at the parliament about the National Bank of Ethiopia (NBE) directive no. REL/05/2002, ‘external loan and supplier’s credit directives’ which were amended late last year as ‘FDX/47/2017, that excluded local investors from the access of the suppliers’ credit scheme.
The association that has close to 77 member companies engaged in five different metal and engineering sub sectors employing 50,000 plus workers has appealed with a letter to the PM Office and the standing committee petitioning that local investors be considered as equal to all investors.
The hard currency crunch that has severely affected the economic activity of the country has been worsening in the past months and among the sectors most affected are the manufacturing sector that hold tens of thousands of employees, according to experts.
Solomon Mulugeta, President of the EABMEI, insists that the basic metal and engineering sector is a major area that needs priority access to the scarce hard currency after the petroleum sector. He told Capital that the foreign currency shortage deeply affects the activity of the stated sector.
According to the letter that the association sent to the relevant government offices, it has asked the government to revaluate the directive that it amended via NBE last October.
The old directive had given the green light for investors to import their inputs via a supplier’s credit scheme if they are engaged in a hard currency earning or export sector.
Currently, foreign based companies that have investments in Ethiopia are allowed to import the required input through the supplier’s credit scheme, to continue manufacturing their export oriented or local supply product.
The NBE directive article 4.2 states that FDI companies are eligible for supplier’s credit.
“We are not saying why the FDIs are allowed to use the scheme, but we need to include all actors including the local investors,” Solomon said.
Solomon claimed that the issue has to be solved quickly so as to ensure fair play for all actors, who are engaged in similar investments be they local or foreign.
The letter the association sent to the PM Office and copied to more than seven public offices and companies, stated that the steel industry is currently running on a forced under capacity mode.
It also notes that although the government policy states that local actors are the pillars of the country’s industrial development, the NBE amended directive in late 2017 stands against the government’s intent.
“The system will kill the local industry and make the country dependent on foreign investors,” the letter explained.
Foreign companies have better experience and exposure to access hard currency and markets than the local investors and better access for such kind of credit, it argued.
“Foreign investors are not here to compete with local investors, which are very infant, but the intention of the directive is unclear,” the association head expressed its confusion.
“If we see the intention positively the directive may target to maintain the FDI flow and encourage them, but it has to be set with conditions that the government creates several incentives,” he added.
The letter further expressed that the FDIs in-kind loan will also be settled from the national reserve, which is against the protection of local investments it claimed.
The issue was also raised at the manufacturing exhibition that opened late last week at the Millennium Hall,to the Deputy Prime Minister Demeke Mekonnen.
“Currently only the problem and concerns of the issue is raised but it has to be clear how such directives and rules are put in place by the central bank and for to what end,” Solomon claimed.
A huge amount of money has already been invested and such kind of directives drafted and issued without consultation with relevant bodies are significantly affecting the country. Such issues need to be discussed and we want to talk with central bank officials and the PM,” he commented.
In its conclusion of the letter the association has also expressed its interest to meet relevant bodies for further dialogue.
EABMEI has 77 members that include five sub sectors. The sub sectors are long, flat, fabrication, engineering, and automotive product producers.
The long product producers produce rebar, wire and cable, tubular section and other related products. Flat product producers engaged in galvanizer and roof sheet, while the fabrication produces steel structure, thinker and truck bodies. The engineering and automotive sectors are engaged in producing machines and parts, and automotives respectively. The sector has directly created direct employment for 50,000 and indirect up to 250,000, according the association head.
Construction workshop participants call for opening financial sector, improving administration
People working in the construction industry say the government should open up the financial sector and find better skilled administrators so as to deal with the existing severe shortage of hard currency in the country. At a workshop organized by the Ethiopian Civil Engineers Association (ECEA) under the theme:‘The role of banks and insurance companies in the sustainable development of the construction industry in Ethiopia,’ participants said the government is not prioritizing construction when it comes to accessing finance.
Even though the construction sector is Ethiopia’s largest employer after agriculture it does not receive priority access to loans.
“Industry makes up 23 percent of the GDP and from that amount 75 percent comes from construction,” noted a participant.
Construction in Ethiopia has deteriorated over the past couple of years, according to Tsedeke Yihune (Eng), head and owner of Flintstone Construction, one of the workshop’s speakers.
According to him revenue from construction decreased 60 percent this year and 40 percent the year before.
He told Capital that it is obvious construction has declined as seen in the amount the sector has paid in taxes that has been consistently decreasing over the years.
Tsedeke told journalists that this year the construction sector has not been able to access any significant amount of finance because exports and manufacturing have been prioritized and the hard currency shortage has deeply hindered construction.
He claims there is enough liquidity and hard currency in the national reserve and cash in banks.
“My colleagues and me believe that the problem is lack of administrational capacity or interest in the political economy,” he explained.
He thinks that there is not really a shortage of hard currency because up to 20 percent of the GDP is hard currency reserve and the remittance in 2016/17 was USD 6.5 billion, “So how has the hard currency shortage occurred?” he asked.
He said the root challenge of Ethiopia’s financial system is administration.
Aisha Mohammed (Eng), Minister of Construction, told Capital that it needs further study before declaring where the problem lies.
“The government states that there is a hard currency shortage in the country,” she said.
“As the title of the workshop states, we have seen the role the financial industry plays in the construction sector development and the growth of the country,” Tesfaye Workineh (Eng), President of EACE and Managing Director of United Consulting Engineers Plc (UNICONE) said.
He added that the main goals of the association are trainings and increasing the skills, professionalism, achievement, ethics and loyaltyof those working in the construction sector.
Zafu Eyessuswork, United Bank, Board of Directors Chairperson and eminent expert on the financial and insurance sector and the other presenter at the workshop, said that financial sector’s regulatory body needs to improve its capacity.
“The regulation is extremely high and sometimes its looks like it is applied with a lack of expertise,” he said. He elaborated it may reflect the infancy of the financial industry which opened up around 25 years ago.
“In relation to the formation of new private banks one should not forget that their leaders came from government banks and their role model is a monopoly,” Zafu said.
Some also claimed that there is fraud in both the financial and construction sectors. “We have to clean our own house and at the same time solve the problem in the financial industry,” one of the participants said.
“Our banks need more time to provide project finance in the country,” the financial expert said. He thinks private banks have too little capital and not enough grasp about competition.
“This workshop is targeted to create awareness about the current challenges in the finance and construction sectors and specific ways to solve problems,” he added.
He told journalists that the civil engineering sector also needs to improve its expertise in the finance world.
The Ethiopian Civil Engineers and Architects Association was formed 55 years ago. About 20 years ago it separated into two and the Ethiopian Civil Engineers Association came into being.
The association is engaged in training and awareness creation workshops for its members and works with relevant government bodies to alleviate challenges faced in the construction sector. For instance it has signed a memorandum of understanding with the Ministry of Construction, whereby the association will provide input about new and existing rules and regulations after conducting research and reviewing scientific journals.
According to Tesfaye (Eng) the Association will have at least two additional events before the end of the current Ethiopian year. “And they will help new graduates and professionals enhance their skills,” the president added.
The workshop was opened by Aisha Mohammed (Eng), Minister of Construction, and held at ECA.
US Economic professor optimistic about Ethiopia
Tyler Cowen (PhD), a prominent professor and economist in the US suggested several steps Ethiopia could take to bring in more hard currency. He does not think devaluing the Birr will alleviate the hard currency shortage.
During his private visit to the country the professor lauded the economic achievements that the country registered in the past but he went over some economic concerns.
“I am probably more optimistic about Ethiopia than any other African nation. He said that it has registered high growth in the past decade. What I is see the asset here human capital I think it is very strong,” Tyler, who published an opinion early this week entitled ‘Ethiopia Already Is the ‘China of Africa’’ on the Bloomberg website after his Ethiopia visit, said to reporters during a presser at the US embassy.
Regarding with the latest hard currency shortage that the country faces he said that as long as the price is wrong supply and demand will not be equal.
Ethiopia must deal with Addis becoming a mess, he said. He pointed out that 25 years ago a lot of Indian cities were in a sense like Addis is now. So stopping Addis from becoming a non manageable wreck would be one of the biggest challenges.
As long as the price is wrong supply and demand will not be equal. “Since the interest rate remains somewhere between 30 to 33 percent different from the market rate, the problem will always be there,” he said. He said the government might be forced to free up the interest rates in the future and when that happens, it would likely be painful for at least the first two to three years. “In the long term it is better for the economy after two –three years of intense pain,” he added.
Restoring normal open capital markets at a consistent pace is another recommendation he made.
He thinks brining in foreign banks will not solve the foreign exchange problem. However he does see some benefit:
“So long as the price is wrong, supply and demand will not be equal. So allowing in foreign banks is probably good idea because you have secure financial institutions and they will give you better innovation, better networks for FDI, that is all good at the same time as long as the price is set to high for the value of the things you goanna have the capital imbalance,” he explained.
He said that devaluation would not give any extra support for exports since the input would be imported with the highest price. “You may sell more but at the same time importing inputs will be very expensive,” he said.
Tyler is a professor at George Mason University and also director of the Mercatus Centre. His book the Great Stagnation: How America Ate the Low-Hanging Fruit of Modern History, Got Sick and Will (Eventually) Feel Better was a New York Times best–seller.
Council of ministers lifts the State of Emergency
The Council of Ministers in its regular meeting on Saturday June 2 lift the state of emergency that was imposed on February 15, right after the resignation of the previous Prime Minister Hailemariam Dessalegn. The draft law will be sent to parliament for approval by next week.
According to a tweet from Fitsum Arega Chief of Staff at the Prime Minister office the lift came after the security situation in the country is back to normal. ‘The Council of Ministers in its regular meeting reviewed the security situation of the country. It noted that law and order has been restored. It has approved a draft law that lifts the State of Emergency. The draft will be sent to Parliament for its consideration’ reads the tweet.
The lifting of the state of emergency was widely expected after the new Prime Minister, Abiy Ahmed came to power. However it took him exactly two months to lift the emergency decree after he took power.
Ethiopia announced a state of emergency on February 15, a day after the prime minister resigned, as pressure mounted on the country’s ruling coalition. The coalition decided emergency rule was ‘vital to safeguarding the constitutional order’.
The country fully lifted its last state of emergency in August 2017, following months of curfews, restrictions on movement and the detention of thousands of people.
Those measures followed two years of anti-government protests in which security forces killed hundreds of people in Amhara and Oromia Regions, the nation’s two most populous provinces.
EPRDF has been in power since 1991 and controls all 547 seats in parliament. But cracks have appeared since the outbreak of unrest, with some senior officials resigning and others being sidelined.
