Massive loans poured over the years into commercial farms in the Gambella Regional State have results with 84pc spending on the intended purposes, but with disappointing results of productivity that is a fraction of the investments, a report presented to the Prime Minister’s Office reveals.
The report comes after an investigation into allegations of mismanagement of loans, favoritism and impropriety on the part of recipients surfaced last year.
Many of the allegations were about the subversion of over 3.3 billion Br in loans advanced by the two state owned banks to private investments in the regional state, known to have vast fertile land and lightly populated area in the South-Western part of the country. However, large chunk of these loans were made available by the Development Bank of Ethiopia (DBE), whose long time President, Esayas Bahre, was relived off his position few weeks ago by the Prime Minister’s Office. He was accused of favoring certain group of developers in loans provisions, which were allegedly misused for investments other than commercial agriculture.
Out of a total of 600 developers in Gambella, 200 of them received loans from the DBE and the Commercial Bank of Ethiopia (CBE) to finance 206 projects, and before the DBE suspended loans to the commercial farming sector earlier this year. They were issued with close to five billion Birr in loans, to be disbursed over a certain period of years. Of that amount, DBE provided 2.76 billion Br, while CBE’s share was 587 million Br.
“Most of the allegations have to do with the money being used for unrelated things,” said one commercial farm developer who asked to remain anonymous. “There were rumors that some of the investors used the money to put up buildings here in the capital or abused their duty free privileges.”
There were indeed cases of misuse of funds and abuse of privileges, according to the investigation carried out by a technical committee of 13, composed of members from experts from three ministries, the regional state, the two banks, and two experts from Agricultural Investment & Land Administration Agency. It was under the supervision of another political body, comprising of seven high profile members of the Administration, appointed by Prime Minister Hailemariam Desalegn, in May 2016. Alemayehu Tegenu, a state minister for Agriculture & Industrial Policy & Planning Implementation Supervision, chaired the investigative committee, thus owns the report, which reveals list of inappropriate use of funds.
In one instance, Alemayehu’s report found out that an unnamed developer has brought to the country 78 vehicles abusing a duty free privilege, while another developer has failed to use 498.7tns steel imported, worth over three million Birr, for the purpose of constructing a camp inside the farm.
A significant number of vehicles bought using loans and duty free privileges were used for purposes other than farming, including sales to third parties, says the finding. Of the 189 imported vehicles, all but 33 were nowhere to be found when investigators visited the farms.
But DBE officials find that hard to believe.
“They can’t be sold to third parties,” said a senior manager at the DBE. “The vehicles are supposed to be registered under the DBE. That is unless they were unregistered from the beginning.”
What should be more troubling to the DBE though is a higher percentage of the loans taken as working capital was spent on unrelated purposes. Close to 278 million Br was not spent on the farms, from a total of 1.2 billion Br injected into commercial farms as working capital.
“Although much of the loans were used for their intended purposes, some of the developers have used their loans to purposes that were not aimed for,” says Alemayehu’s report.
However, these and plenty of other misuses represent 16pc of the total loans, reveals the report.
The report, submitted to the Prime Minister, prompted a meeting couple of weeks ago held by Hailemariam and Kebede Chanie, director-general of the Ethiopian Revenues & Customs Authority (ERCA) with presidents of the two banks, officials from the Ministry of Agriculture & Natural Resources, and Gambella Regional State.
They were greeted with a report that disclosed that of the 229,755ha of land conceded to commercial farms developers in eight weredas of the Gambella Regional State, close to half of them began their initial operations and preparations with investments worth two billion Birr remain in project phase.
“There is confusion in the commercial farming industry and elsewhere about how the DBE loans were disbursed,” said a senior banking official at the DBE. “There were some things in the report that could have been explained by DBE’s operators.”
Following the appointment of Getahun Nana to the presidency of the DBE, many meetings have been held to discuss the issue of investments in commercial farms. In one of the meetings with district managers, the new president expressed his confusion on the findings of the Alemayehu’s report. Getahun has called for another detailed study to be conducted, although no details have been announced yet.
Getahun, who has served the central bank for many years prior to his current appointment, was unavailable for comment despite repeated attempts by Fortune.
The Bank he is entrusted with suffers from higher percentage (over 50pc) of non-performing loans from a total of 11.8 billion Br loans and advances it has made in 2015/16. But much of the default comes from its financing of the manufacturing sector, whose share of these loans reaches at close to 60pc. The share of the agricultural sector in default is less than 15pc, according to company sources.
Nonetheless, the Bank’s senior managers and the Administration officials who have made the DBE a policy-bank have a lot to worry about on value for money. Of the 3.35 billion Br the Bank has disbursed, the return on investment was only 6.6pc, exposing that investments in commercial agriculture is not after all a bonanza.
“Productivity in private farming is not profitable; takes longer years to recover the loans; and its contribution to the national economy is insignificant,” Alemayehu’s team passed its verdict in its findings.
Access to land, provisions of loans and advances as well as administration of commercial farming estates are major sources of “rent seeking” where there is a network of middlemen, transacting kickbacks from 50,000 Br to 400,000 Br, disclosed Alemayehu’s report. Unusually, the report has identified the names of 21 middlemen accused of running the network of high-level corrupt individuals.
The investigative report is not without a challenge from the Bank and within the Administration. The criticisms come as a result of the exclusion in the committee of some of the developers or the private sector, while the report suffers from an oversight on those commercial farms which have succeeded. It also skips the profits made at the end of the fiscal year, for the investigation was conducts in the middle of it. It has also failed to identify the role and place of foreign investors in the region such as the now bankrupt Karaturi, an Indian investment, and Saudi Star.
“This report proves to us that there really is a bias against the sector and against us the investors,” said a group of five commercial farm developers who spoke with Fortune on the condition of anonymity, due to the controversy the report now flares.
These are among 231 developers who had applied for loans from the DBE, but were forcibly evicted from their leased properties in Gambella by regional authorities in February 2016. The authorities say that the developers were accidentally given lands that were under federal jurisdiction.
But they are not alone in their challenge to the findings. The Gambella Agricultural Investors’ Cooperative, chaired by Yemane Seifu, sent an email to Fortune, expressing its disappointment over the Alemayehu’s report with no uncertain terms.
“The committee presented a misleading report to the Prime Minister,” said the Cooperative.
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