15 November 2017

Ethiopia: How CBE Walks in Promoting Foreign Trade, Investment?

The Commercial Bank of Ethiopia (CBE) has been playing a pivotal role in enhancing foreign trade and flow of domestic and foreign investment in the country apart from providing multifaceted banking services.

Taking in to account the Bank's instrumental role in supporting the nation's economic development, the government has been hugely engaged in expanding the Bank's capacity. It also approved this year the increment of its capital up to 40 billion Birr. As country's biggest public Bank with 1,233 branches, CBE's total asset hits close to half a trillion Birr.

The CBE has been heavily engaged in financing country's economy and disbursed 14.6 billion Birr loan for development projects and businesses in the first quarter of the 2017/18 fiscal year, Bank's Communications Manager Belihu Takele tells The Ethiopian Herald.

The Manager notes that the Bank has put in place a Foreign Currency Earning Strategy aimed at supporting companies engaged in the export sector.

In line with government's export incentive regulation, CBE has given priority to provide loan and foreign currency for companies engaged in the agro-processing, manufacturing and infrastructure sectors, Belihu states.

"More importantly, our Bank organizes Exporters' Day every year to give recognition for outstanding exporters who have generated a sizable foreign currency and encourage others to follow suit. For instance, last February, we awarded 127 organizations that have generated more than one million USD each in the 2015/16 budget year."

The Bank is also striving to make the foreign currency generated from export of commodities to support the country's development and provide various supportive packages for companies interested to engage in the sector, the Manager adds.

Sharing Belihu's idea, Economics Associate Professor at Jimma University, Dr. Wondaferahu Mulugeta says CBE has been serving as the primary source of finance for companies engaged in foreign trade.

The Associate Professor indicates that the Bank is serving the companies through the provision of demanding foreign currency.

Dr. Wondaferahu says: "Backed by government's funding, the Bank has offered a considerable amount of loans to finance foreign trade and facilitate export of goods thereby enhancing country's foreign currency earnings."

The economist notes that due to the advanced technology the Bank has been employing, the communication gaps and delays in the foreign trade have also been significantly reduced.

According to an economist Zemedeneh Negatu, CBE's huge involvement in funding foreign trade would have an essential role in supporting the country's vision of becoming a middle income economy by 2025.

The economist states that the Bank has extended loan to both private and public companies while giving priority for companies importing high-tech machinery and other capital goods that would help country's plan of economic transformation.

Praising the CBE's Exporters' Day, Zemedeneh says the Bank should formulate additional strategies and programs that would further encourage companies strive to bring additional foreign currency to Ethiopia's economy.

Concerning investment, Belihu says CBE has been engaged in nurturing public's saving culture and expanding its branches across the country to broaden the level of domestic saving.

In the 2016/17 fiscal year alone, the Bank opened 85 additional branches that will make the saving service more accessible for the public including those who live in remote parts of the country.

Alongside increasing the number of branches, the Bank has also been providing technologically-advanced mobile and internet banking systems that significantly easing customers' access and fostering the level of domestic saving and investment, the Manager states.

Zemedeneh agrees with Belihu's idea, he says the new branches would play a crucial role in promoting the culture of saving in the society and would help to create conducive atmosphere for accessing loans and providing incentives to expand investment and related activities.

"The expansion of branches is also essential in enhancing public's participation for the execution of various mega projects including the Grand Ethiopian Renaissance Dam that would have significant role in transforming the country's economy."

The Manager indicates that CBE has issued various prize schemes and prepared specialized saving systems for youth and women and offers interest free service that would best fit with the interest of a particular group of the society.

Belihu claims all the Bank's interventions in this regard have been evidently successful in boosting the level of domestic saving, which is crucial to finance investment projects.

He notes that CBE has been funding both domestic and foreign companies and support the plan set to make the private sector an engine for country's overall economic growth.

"As a governmental entity, the Bank has also hugely engaged in financing public's investments in the manufacturing, infrastructure, agro-processing and other priority areas. Furthermore, it supports mega projects in the energy, sugar and telecom sectors prioritized as strategic importance for economic transformation."

In this regard, Dr. Wondaferahu says the Bank has been serving as the primary financial source of investment projects over years.

Bearing the stated facts in mind, however, both experts argue that the Bank's funding for foreign trade and investment has not reached at the desired level compared with its enormous lending capacity.

As to Dr. Wondaferahu, CBE's complex lending process, which is based on strict collateral and other requirements, impedes the Bank from fully offering its reserves for domestic and foreign companies.

According to him, some feasible investment projects could not able to commence operation as they failed to meet the Bank's collateral requirements.

Zemedeneh says the current shortage of reserve has also created a challenge for the Bank to provide the much-needed hard currency to companies.

The experts highlight that the Bank should enhance its lending capacity and ease the lending procedures for feasible projects that have been challenged by strict collateral requirements.

Contrarily, Belihu says CBE follows certain procedures to allow loans and evaluate projects' feasibility and their expected outcome for the national development. The Bank also set up service delivery time for each task and has been offering effective and efficient responses for feasible credit proposals.

Being in the banking business over 75 years, the Bank has accumulated experience to furthering its engagement and put in place innovative approaches in financing foreign trade and investment thereby advancing country's journey to middle income economy, the experts underscore.

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