Ethiopia: Inadequate Credit Leaves Manufacturers Disappointed, Minister Blames Lenders

13 May 2023
The Reporter (Addis Ababa)
By Elias Tegegn

Ethiopia's underfunded industrial sector is facing a setback since commercial banks have failed to offer adequate credit to manufacturers, according to a recent Ministry of Industry report spanning a nine-month period.

Only 3.3 billion birr of the entire 20 billion birr loan that was meant to be disbursed by the end of the third quarter of the current fiscal year has been granted to manufacturers, leaving them disappointed.

- Advertisement -The Ministry has blamed commercial banks for their inability to provide sufficient credit to large-scale manufacturing industries.

Ethiopian manufacturers are having difficulty obtaining the necessary financing to develop and expand their operations, according to Melaku Alebel, Minister of Industry. The Development Bank of Ethiopia (DBE) remains the main financier of large-scale enterprises, with commercial banks accounting for a remarkably small share, according to the Minister.

"It is alarmingly low," Melaku remarked as he presented the nine-month report to Parliament. "The banks demand excessive collateral and provide short-term financing at a higher interest rate."

The underfinancing of the manufacturing sector contradicts the government's policy objective of having the sector play a leading role in the economy. While the manufacturing sector's contribution to GDP, in terms of value, has gone up dramatically over the past decade, it still accounts for less than five percent of the total.

Lack of access to finance, which has prevented industries from expanding operations, has been identified as a major contributor to the manufacturing sector's and the economy's uneven growth.

"A special intervention is required to strengthen the financing provided to the sector," Melaku said.

Foreign currency disbursements for industry actors continue to be inadequate. Only USD 132 million of the USD 432 million requested for the procurement of inputs and spare parts has been made available.

"The currency did not come from banks. Rather, it comes from the export proceeds they made as well as their own sources that they are entitled to utilize for Franco Valuta imports," Melaku remarked.

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