‘Exaggerated’ Salary Flares-up Tension Between DBE, Turkish Firm


The 51 million dollars company pays 1.1 million dollars salary for its expat employees a year




A Turkish company with an outstanding loan balance of half a billion Birr is embroiled in a dispute with the Development Bank of Ethiopia (DBE), its creditor, for paying what its senior bank managers believe is ‘exaggerated’ salaries to its expat employee. The company has made no payments on its loan since its entrance into the country five years ago.

Kumtek Industrial Plc, a 51 million dollars Turkish company that manufactures electric and kitchen appliances, currently spends 1.1 million dollars a year to its 11 expats employees. The company pays 30,000 dollars a month to its board chirman, 20,000 dollars to the operations manager and 8,000 and 4,000 dollars each to other employees from Turkey.

Its creditor, DBE has refused to approve these payments stating that the exaggerated nature of the salaries as compared with the country’s standards and questioning why the payments are being made in foreign currency, according to sources close to the case.

Established in 2014 with the primary aim of selling its products to neighbouring countries, Europe and the United States, Kumtek is in debt to the tune of 521 million Br, including interests, to DBE. The company came to the country after delegates from the company met President Mulatu Teshome (PhD) and were invited to invest in the country. President Mulatu met Osman Koseolu, board member of Kumtek, and the general manager, Akturk.

The company had planned to produce 5,000 different types of kitchenware a day.  However, it is currently producing less than one-fifth of its capacity where it operates on the six hectares site in Dima, Oromia Regional State. The Turkish investors opened the company raising 30pc of the capital in kind, and DBE pledged 439 million Br, the remainder of the investment. It initially targeted to be operational in 2015. However, it became partially operational and was delayed by over two years.

When it became operational last July, the company began manufacturing electrical heaters, mini and mid sized electrical ovens, toasters, and electrical grills with its seven assembly machines and additional 46 different types of machines. It has 480 local and 11 expat employees working in two shifts. It was expected to start paying its loan last October, but it was extended by one more year as the company was deemed unable to make payments. During the payment extension period to December 2018, the company is required to pay 74 million Br.

The delays in production and loan repayments could affect the future productivity of the company, according to Abdulemanan Mohammed, a financial expert with 15 years of experience.

“The current expenses of the company, including the exaggerated salary, will be added to its capital,” said Abduleman, “therefore, the company will be challenged to recover from its financial situation.”

Though the company was allowed to raise second-hand machines as equity, most of the equipment brought to the country are scrapped, according to a source close to the case. Fortunehas witnessed some machines installed by the company are deteriorated and partially damaged.

The company attributed the delays in operations and failure of its loan payments to electric power shortages and the recent political unrest in the area. During the unrest, they claim the company had ceased operations for half a year and incurred extra cost to maintain the damaged buildings. The company is receiving half of its actual electric power demands, according to its management.

The management additionally claims that the company imports 2.9 million dollars worth of raw materials with franco valuta and additional machines worth 57 million Br. The outlook for the company could change, according to the management, stating they have reached an agreement with two local companies to supply products and have received a 180,000 dollars export order.

Kumtek is one of the 160 operational investments owned by Turkish companies with an aggregate capital of over 2.5 billion dollars in the country. These companies are engaged mainly in the textile and the apparel industry. The businesses are also in energy, steel, ceramic and construction areas. These investments have created over 30,000 permanent and temporary jobs.

Four companies which used to be owned by Turkish investors have left the country recently defaulting on their loans. Else Addis Textile in Adama and Angel’s Cotton & Textile in Legetafo defaulted after taking loans from DBE, and the owners abandoned the two companies. Selendawa and Sagin Dima are additional textile companies that are abandoned their owners after defaulting on loans from the Commercial Bank of Ethiopia (CBE). The banks have already taken over the companies, and they are administrating them.

Though DBE has made amendments to its loan provisions, it still needs to have effective project evaluation and follow up departments, according to Abdulmenan.

Kifle Haileyesus, communications director of DBE, declined from giving any comment stating the bank’s nondisclosure policy of information about its clients.

Turkish owners of Kumtek did not respond to the inquiry sent from Fortunevia email and text message.

 



By FASIKA TADESSE
FORTUNE STAFF WRITER

Published on Aug 04,2018 [ Vol 19 ,No 953]


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