Loan applications from close to 260 commercial agriculture investors have got the green light to be processed after a year long hiatus on agricultural loans. This was announced by Development Bank of Ethiopia, a major financier of such loans, on January 27, 2016.
The Bank announced that it would restart the process of issuing loans to commercial farm investments.
Aside from the existing loan applications, the Bank will start to receive loan applications on February 1, 2017. The loan scheme for commercial farms was suspended nationwide after a controversy involving financial maladministration in the Gambella Region.
Long and medium term loans will be available for ventures such as commercial farming and agro-processing. Loan candidates whose applications already reached the final approval stage will have to go through a reevaluation.
“The reevaluation will ensure that the same mistakes are not repeated,” said Hailu Mesganew, acting communications director of DBE. “We need to avoid problems related with overlapping of farm lands.”
Since the freeze on agricultural loans from DBE, investors in regions outside Gambella expressed dissatisfaction that loans had been paused nationwide because of the issues in Gambella. Commercial farm investments experienced some turbulence during the past year. A report released a month ago, compiled by a task force from different government agencies revealed that out of a total of 3.3 billion Br in loans advanced by Commercial Bank of Ethiopia and DBE to private investments, 16pc was misused and diverted towards unintended purposes. In addition, the productivity of the commercial farm was reported to be poor.
Commercial farm productivity was at 6.6pc, according to the report. However, the findings in the report caused frustration among investors in the sector.
They complained that the report failed to understand the reality on the ground. One of the complaints was that foreign investors accounted for most of the productivity issues in the sector. The figures for the misused finances were completely wrong, according to investors. The money used for purposes outside commercial farms came from the investor’s own pockets.
The government’s commercial farming initiative began in 2008 when the government started to look to the sector as a strategy towards food security. In the same year, globally there was a leap in food prices.
At that time, the government identified 3.5 million hectares of fertile land available for agricultural investment for both local and foreign companies. Most of it was located in Gambella, in the Southern Nation, Nationalities & Peoples’ and Benishangul regional state.
In 2015, there were 5,680 local and foreign investors involved in the sector, 5,583 were licensed and handled by regional administrations. The remaining 97, which were large-scale agricultural investors, were licensed and handled by the-then Agricultural Investment Land Administration Agency at the federal level. A total of 2.43 million hectares of land was leased to the investors.
Despite the anticipation, the investment has brought minimum result. Big companies like Karaturi, which had a 100,000ha plot of land failed and went bankrupt. Following the release of the report the Bank officials carried out discussions with investors, officials from Gambella region and federal government officials to find long term solutions to the problem.
When considering loan applications, priority will be given to investors based on the stage of their applications, the agro-ecological zone of their farmland, as well as whether the farm depends on rainfall or irrigation, according to the Bank’s acting communications director, Hailu. “Those who are depending on rain will be given priority while investors who use irrigation may come second,” commented Hailu.
Investors in Gambella have two seasons of farming, in May and October, which makes it important to investors that loans are approved in the next month.
“We should not miss the coming season,” said an investor from Gambella. “We were at the last stage of the application process when the loans were frozen.”
In 2015, DBE disbursed close to 1.5 billion Br to the agriculture sector, out of the total of 11.84 billion Br loans that were injected into the various sectors.