Addis Fortune (Addis Ababa)

Ethiopia: Govt Intervenes to Thaw Frozen Accounts of Foreign Leather Companies

The bank accounts of Pittards Leather Ethiopia, a British-owned leather company, and Friendship, a Chinese tannery, which were to be frozen for almost two months by a court ruling, were released after three days of suspension last Monday, December 23, 2013. This was following the intervention of the Administration of Prime Minister Hailemariam Desalegne, Fortune has learnt.

The two companies were sued by a major hide supplier, Sisay Retta, who claimed 24 million Br and 15 million Br in unpaid arrears, a week before last.

Accordingly, the Federal High Court's Eighth Bench presided by the Judge Hussein Yimer, passed a ruling on December 19, 2013, freezing the accounts of the two foreign companies.

Uproar and frustration from the companies easily reached the power corridor of the government.The fact that bothBritainandChinahave strong presence inEthiopiaraised the sensitivity of the matter.

Despite being accused of human rights violations, the dministration is among the largest recipients ofUKaid inAfrica. The amount is now a twenty fold of the past ten years. Similarly,China's presence inEthiopiais highly valued by the administration. Its investment size stands at over one billion dollars

An intervention from high-ranking federal officials - the Ministry of Industry (MoI) being at the forefront - resulted in brokering a deal, which led to Pittards settlingthe claim. WithEthiopia's relationship with the two major donors at stake, the government pushed its intervention further and secured the release of the accounts, sources close to the issue disclosed to Fortune.

"The news of the court ruling sparked shock among government circles," said Tadesse Haile, state minister for Industry.

Following the intervention, Pittardspaid the 24 million Br to the plaintiff, Sisay, whereas the Friendship did not make the payment until the evening of last Friday, December 27, 2013.

Pittards has been hit by numerous complaints from hides suppliers that it does not pay on time. Excluding the 24 million Br, Pittards has taken credit of around 13 million Br, which it is expected to pay within the coming month, according to Sisay. The former amount should have been paid before the end of the last Ethiopian fiscal year, on June 30, 2013 whereas the later was not included in the court case since the former agreed to pay it back within two months in July, according to Sisay.

"Working with credit is not something new, but freezing company accounts is like halting the export performance of the country," said Tadesse.

The Chinese company, on its part, was accused of exporting semi- finished leather before some five years. The government, though informed about all these, stood by the side of the companies

The justice system has to go in line with the market economy, Tadesse claims.

"We will continue to intervene whenever similar incidents arise," He said. " The issue of export is a matter of life and death for the government."

Although maintaining a relationship with Ethiopian hides exporters for decades, Pittards came to the Ethiopian market after the government hired it to manage the Ethiopia tannery, whose factory is locatedin Ejersa, near Mojo in the Oromia Regional State - 76km east of Addis Abeba - on a five-year contract.

The Administration says it is determined to transform the country's tannery industry from the export of semi-processed hides to crystal and finished leather products. The latter, theAdministration claims, are vehicles to upscale the leather industry to become internationally competitive.

Ethiopia, which registered 3.08 billion dollars in export revenue in the 2012/13 fiscal year, expects to push the figure up to 6 billion dollars at the end of the Growth & Transformation Plan (GTP). Leather and leather products managed only 63.3pc of the targeted 206 million dollars during the fiscal year 2012/13, with 121.9 million dollars.

With an export-led trade policy, which is also connectedto addressing the shortage of foreign currency, the administration wishes to promote the export so that it can provide foreign companies with a number of incentives, including providing land at low cost. In turn, the companies are expected to export at least 80pc of their products.

Taking the Ethiopian Tannery, which has been operating for over two decades, Pittards began the export of leather gloves, producing close to 1,000 units a day, among which 80pc was for export whereas Friendship has the capacity of 5,000.

Sisay, an old hand in the export of hides and skin, is also accused of hording stock in a bid to jack up process. This led parliament to pass an act regulating the supply line. Officials at the Ministry of Industry are currently writing a directive to enforce the act, one of which makes collectors' supply direct to the factories and aspires to eliminate middlemen from the supply chain.

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