Ethiopia: Local Manufacturers Criticize Suppliers' Credit Facility Amendment

The amendment made last year on the External Loans and Suppliers' Credit Directive of the National Bank of Ethiopia has been criticized by local manufacturers for its effect of marginalizing local firms from accessing foreign currency and suppliers' credit facilities. materials as long as they are exclusively export oriented; however, the move by the central bank has been criticized for systematically marginalizing local manufacturers.

The amendment eased the process and authorized industrialists to import raw

Similar to that, exporters and local investors were also eligible to acquire external loans or supplier's credit as long as the loans and the supplies provided are destined for export-oriented investments that generate hard currency.

The new approach reintroduced by NBE states that firms that have mother companies in foreign land (does not matter if they are export oriented or not) are allowed to have supplier's credit or external loan opportunities. It also enables them to import raw materials in order to keep manufacturing plants running. The amendment of the directive, however, was downplayed by local manufacturers.

A group of associations, who met with Deputy Prime Minister Demeke Mekonnen on Thursday during a sideline of the metal, engineering, chemicals, and construction industries exhibition, disapproved saying the arrangements are exclusively foreign investor oriented. They have urged the deputy prime minister and his government to look at the facilities and make it more inclusive so that local manufacturers also benefit and keep shops running.

This time around, the manufacturers were not alone having the backing from the Ministry of Industry. Fekadu Haile, deputy director of Chemical and Construction Industry Development Institute who was also the chairman of the committee for organizing the exhibition, told The Reporter that the institute has hired an expert to study the sector and the challenges local investors face. Most local manufacturers focus on import substitution while some engage in the export market.

When asked whether officials at NBE have been made aware of the requests manufacturers have echoed, Fekadu said that they were invited to the meeting but did not show up. He said that the questions representatives of the manufacturers raised will be formally submitted to NBE. He went on stating "We want to eradicate the challenges and provide decision makers with a recommendation."

During the meeting, among the questions and concerns echoed to the Deputy Prime Minister included those by the Ethiopian Basic Metal and Engineering Industries. Solomon Mulugeta, general manager of the association said that in addition to the critical hard currency shortage and NBE's supplier's credit scheme, newly emerging challenges are rocking this sub-sector. Among the issues, he mentioned that smuggling and contraband importation of galvanized corrugate sheets is making headwinds in disrupting the course of manufacturers. An outdated duty-free privilege of five percent against the imported corrugated sheets is another point he made on behalf of the association.

Beyene Tadesse (PhD), an expert hired by the Chemical and Construction Industry development institute to study the challenges and performances of the manufacturing sector, while presenting his study questioned NBE for lack of transparency in availing hard currency and its management. He also stated that imports of raw materials in the baskets of imported goods represented only 1.2 percent over the past ten years since 2001.

Import bills mostly are directed towards importing semi-finished and capital goods representing close to 50 percent of the entire import of the country as seen in the same period of time. According to Beyene, the government should create a special window of Franco-Valuta scheme exclusively dedicated to manufacturing industries. Franco Valuta refers to a process of importing goods by individuals permitted to do so by using foreign currency from their own resource.

Listening to what the industrialists have to say, Deputy Prime Minister Demeke pledged he will facilitate a special forum that will bring together government actors with the local manufactures so that the major challenges they urged will be addressed. However, Demeke did not mention how soon or when that forum will take place.

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