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Addis Fortune (Addis Ababa)

Ethiopia: ESL Demands Payment for Services in Dollars

Tamrat G. Giorgis

29 December 2008

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The Ethiopian Shipping Lines (ESL) has begun asking its customers to pay in United States dollars, for the first time since May 2000, when the government bailed it out from its unprecedented losses of close to 20 million Br.

A letter signed by Endalkachew Tadesse, marketing manager, requested customers of the shipping line to pay in dollars beginning earlier the week.

This is a decision that would deny the nation's flagship monopoly one of its powerful marketing instruments.

A directive signed by Kassu Ilala (PhD), when he was deputy prime minister back in 2000, ordering all domestic banks not to open letters of credit for imports without bills of lading issued by ESL or waivers from the transporter, the government has sheltered ESL from foreign competition, a policy move that kept the national carrier profitable over the past eight years. But this was done against strong criticism by local importers who have been complaining - rather strongly - that authorities are protecting a state enterprise at the expense of local consumers.

ESL managers are always keen to justify the protection the state granted to them as an "appropriate move" taken to maintain national interest; and more importantly they argue that local importers and consumers are not at a disadvantage for they are paying in local currency, hence are not under pressure to find dollars.

Nevertheless, with the country under a foreign exchange crunch, with the reserve enough to cover only five weeks of imports, the ESL is getting only one fourth of the 200 million dollars annual expenditure it needs from the central bank, a senior manager at the ESL disclosed. This is not enough to pay for its fuel, spare parts and foreign services such as slot chartering, according to an official. This business accounts for 40pc of ESL operations.

Operating with nine vessels, but largely using slot charters (an operation where the national flagship company lease space with foreign operated vessels), ESL generated 2.5 billion Br in operating revenue. This represented a growth of 34pc compared to last year. Its carrying capacity also grew in 2007-08 by 300,000tns from the 1.5 million tonnes it was the previous years.

ESL manager are now concerned that their latest request for payment in dollars will seriously affect this performance.

"I've not obtained 200,000 dollars from the National Bank of Ethiopia (NBE) for three months now so that I could pay my counterpart in Djibouti for the services I got on my clients behalf," said a businessman who owns a forwarding company. "I've not idea how they come to think that we will get dollars to pay them [ESL]."

Ambachew Abraha, managing director of ESL, however sees the latest demand as temporary.

"We'll normalize things once the situation improved," he told Fortune.

Observers say it is unlikely for the nation's foreign exchange reserve to stabilize soon. The NBE is under immense pressure to allocate foreign currency to finance the increasing volume of the nation's imports. Importers, including state enterprises, are forced to wait for several weeks before their request for letters of credit is granted. There is an average waiting period of three to four weeks before the authorities approve requests for foreign currency, according to one study.

Businesses leaders now say this is time for the government to revise the protective shelter it has granted to ESL; they argue government should not demand them to find foreign currency from their own source and force them to exclusively use the national flagship.

"It's now my trading partners overseas who will be paying to cover the transport cost," an importer told Fortune. "They should be free to chose the liner they would like to work with."

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