Ayka Addis Textile & Investment Group, whose debt is three-fold higher than its paid-up capital and has over 1.3 billion Br debt from the government, is going to build an integrated cotton processing plant in Ouagadougou, Burkina Faso with an estimated investment of 200 million dollars.
The company, which was inaugurated in 2010 with an initial investment of 140 million dollars at Alemgena, 20Km west of Addis Abeba, has been declaring loss since 2013. The company made losses of 615.29 million Br and 312.8 million Br in 2014 and 2015, respectively.
It also had accumulated losses of 1.86 billion Br while having a paid-up capital of 678.89 million Br as of December 2015.
Ayka’s to be built integrated cotton processing plant is set to be completed in the next six months, according to Sidwaya, a French-language and the second highly circulated newspaper in Burkina Faso. The paper is associated with the government view.
Loss consumed the monies amounting to 1.18 billion Br that belonged to creditors. The company took close to a 1.3 billion Br loan from the state policy financer, the Development Bank of Ethiopia (DBE).
“Our management can properly manage the plant in Ethiopia,” said Yusuf Aydeniz president of the Ayka Addis, explaining why he plans to open another plant in Ouagadougou in addition to the invitation he received from the Burkina Faso government.
Ayka Istanbul will have a 55pc share in the investment, while the remaining will be covered by the government of Burkina Faso, according to Yusuf.
“I will contribute a penny,” he told Fortune, “the Burkina Faso government has already facilitated loans for the new plant.”
Ouagadougou based media outlets reported that four banks had shown interest to pledge cash for the complex. Afreximbank (the African Export-Import Bank), the African Development Bank (AfDB), ECOBANK and CORIS Bank are the financial institutions which are going to fund the new plant.
However, the local plant, which exports its products to Germany, Spain, the United States, Japan, France and Canada, seems to be in a financial problem.
Ayka should have been subjected to dissolution, as it consumed more than three-quarters of its capital, according to Abdulmenan Mohammed, a financial statement analyst with one and half decades of experience.
“Its financial performance justifies that there is a very slim chance that Ayka would turn its massive loss around,” Abdulmenan comments.
Some factors contributed to Ayka’s losses; higher production costs coupled with massive selling and distribution, administration and financing costs. The revenue of Ayka went down by 23.2pc to 846.86 million Br during the end of the year in December 2015.
“This is a massive reduction, and it reveals that Ayka had faced serious problems in selling its goods abroad,” said Abdulmenan.
Its cost of sales dropped by 36pc to 910.5 million Br.
“What is very perplexing is that the cost of sales of Ayka was much higher than its sales revenue,” said Abdulmenan.
Ayka spent a tremendous amount of money on selling, distribution and administration. These expenses went down by 31.35pc to 126.29 million Br. The reduction reveals that Ayka must have scaled down its operation, according to Abdulmenan.
“Since 2013 I have lost close to 50 million euros,” Yusuf said. “With all the challenges, I am going through, I don’t still want to complain.”
Tadesse Haile, state minister for Exports & Investment in the Economic Section at the Prime Minister’s Office, also believes that the company passed through rough times being disadvantaged as it was an icebreaker.
“If the company were to close its door, it would have been five years ago,” Tadesse said. “However, the owner is committed and is struggling to break through.”
Logistics, raw material, recurrent labour strike, a lower profit margin of textile products, poor work discipline of the local labour and the recent political unrest are the challenges that the efficiencies of the company and the owner is struggling to bear, according to Tadesse.
Forming a new company with a majority share in AYCOOM Agricultural Development, Ayka Addis had secured 10,000ha of land in the South Omo Zone of the Southern Region to start the first certified organic cotton cultivation with 815 million Br. But the project has failed before being operational.
“The project has failed due to the claims over environmental risks,” according to Yusuf, who has been in the textile industry for 43 years.
The owner claims that the company serves a meal and free transportation service in a 24-hour shift, distributed over 30,000 cloth to the localities and gave hands-on training for over 50,000 people.
Ayka had total assets of 1.66 billion Br while owning its creditors 2.84 billion Br. This reveals that the total assets of Ayka will not cover its creditors. Further analysis of creditors shows that Ayka owed banks 1.96 billion Br, and the rest was payable to trade, tax and other creditors. Banks and other creditors would shoulder net negative equity of 1.18 billion Br.
For the past two months, the company was challenged in paying a salary to its 7,000 employees, according to sources close to the case. DBE is pledging fresh loans to the company. Furthermore, the management of the Bank has already started to recruit and hire staff to the company.
“Ayka Addis is like my baby, as it is an icebreaker for the government,” he said. “I will never close it.”
Two Turkish owned companies Else Addis Textile Factory in Adama and Angel’s Cotton & Textile in Legetafo Town defaulted recently after taking loans from DBE. Their owners abandoned the two companies and DBE’s Ethio Capital Investment S.C, which was established to prevent the legal restraints in administering the assets of foreclosed factories and companies, has taken over the companies. The bank has tried to auction off the companies. However, no bidder showed interest in the companies.
Still, industry operators assert that the textile industry is operating with hurdles, such as lack of value chain, accessories, raw material and the recent political unrests.
“These all have effects on the efficiency of the textile factories,” said Fasil Tadesse, president of Ethiopian Textile & Garment Manufacturers Association.
But he believes that foreign companies are relatively safer than the locals.
“The foreign companies have better technologies and export market access. Therefore, they perform better despite the challenges in the industry,” Fasil states.
Kifle Haileyesus, communications director of the Bank, declined from giving any comment, stating that the Bank has a policy of not disclosing private information of its clients.
It was refreshing to see Berhanu Nega (Prof.), leader of an opposition...
Ethiopia’s high potential to deliver animal skins to local and intern...
The Revolutionary Democrats concluded their council...
A country needs to develop effective methods of evaluating projects and...
When we take a step back, we can see clearly how to advance. Change age...
There seems to be an improvement on the macroeconomic side. The Ethiopi...
Following the olive branch afforded opposition parties by the ruling co...