Receptive yet unyielding

Gov’t to Revise Policy on Equity Contributions in Assets for Loans

The administration of Prime Minister Hailemariam Desalegn is to review a policy of the central bank, which domestic investors in the manufacturing sector argue discriminate them against their foreign counterparts in accessing loans and advances from banks.

A policy by the National Bank of Ethiopia (NBE) does not allow banks to take investments made in putting up structures for manufacturing plants and machineries as 30pc equity contributions when applying for loans. Foreign companies, however, have the advantage of importing machineries whose valuations are determined by bank experts to be considered as equity contributions in accessing 70pc of loans from banks, particularly from the state-owned Development Bank of Ethiopia (DBE).

This has been a source of complaints by local companies whose owners harbour strong feelings of favouritism from a bank some go as far as calling it, “Development Bank of Turkey.” DBE has advanced close to 22 billion Br loans over the first three quarters of the past Ethiopian fiscal year where 20 billion Br was advanced to the private sector. Nonetheless, the share of the domestic private sector remains insignificant, while Prime Minister Hailemariam continues to argue access to finance is not the main reason why they are not entering into the manufacturing sector, a source of his frustration.

Ethiopia’s share of the manufacturing sector to the gross domestic product (GDP) remains one of the lowest in sub-Saharan Africa, hovering below five percent in 2011/12, according to an economic update released by the World Bank, in 2013. Although registered marginal growth over the past two years due to foreign investments from India, China and Turkey, largely in leather and textile industries, the place domestic companies have in the manufacturing sector is appallingly low, causing debates within the policymaking circle over what constrain them.

Leaders of the private sector point out access to finance as one of the three top most problems they face while contemplating to start business in the manufacturing sector. A recent survey commissioned by the Ethiopia Chamber of Commerce & Sectoral Association (ECCSA), dubbed “National Business Agenda”, puts access to finance the second most painful constraints, next to problems in tax administration and followed by problems in accessing land and construction permits. Carried out by BKP Development Research & Consulting, on close to 200 businesses, 12 industry associations and seven regional and federal agencies, the result of the survey was presented to the administration during a public-private consultative forum held inside the Millennium Hall, two weeks ago.

Hailemariam, who chaired the meeting for half a day, was not convinced.

Yet again, the Prime Minister is adamant late last week rejecting the notion that inability to access finance is the main reason why his countrymen and women are not in the manufacturing sector in large numbers. Speaking at his occasional press briefings to the local press and foreign correspondents based in Addis Abeba, Hailemariam argued, “finance is only one part of the problems.”

“The fund we’ve allotted to the sector has not been exhausted,” Hailemariam told representatives of the local media on Friday afternoon, July 18, 2014, where he was observed to be more relaxed and at ease. “We’ve yet to accept finance is an issue. There is no local investor [in the manufacturing sector] who has been deprived of loans.”

He rather sees “determination, risk taking and experience,” in short stocks among local businesses, while an entrenched “rent seeking behaviour” to focus on areas of high margin sectors, such as real estate, are to be blamed. The Prime Minister was also candid in accepting outlooks of those in the bureaucracy, particularly in the logistics corridor, as major factor, for they bent to regulate than facilitate to the benefit of manufacturers and exporters. Indeed, the World Bank study finds inefficiency in trade logistics as a main barrier for the private sector and “a major policy challenge to the government.”

“The fiscal cost of implementing most of the trade logistics recommendations is either low or moderate, except spending on infrastructure and trade corridor developments, which would need to be weighed against other expenditure priorities,” the Bank’s study reveals.

The conduct of the bureaucracy in what is popularly referred to as “good governance” – or lack thereof – has been an issue of intense public pressure on the administration. In fact, if there was any in the assortment of issues reporters raised to the Prime Minister last week – including fight on terrorism and concern to civil liberties, and his administration’s macroeconomic performance – none has warmed him up as much as his response to the issue of governance.

Leading an administration whose senior officials increasingly feel they are on the right truck in improving governance, Hailemariam was seen losing his calm and composure he displayed during the first 40-minute long response to questions directed from a reporter representing Fana Broadcasting Corporate (FBC). Not even handling issues in the rather delicate matters of relations with Egypt made him overwrought as the criticism a reporter from the state-owned media quip his administration’s response limited to “reports on paper.”

Hailemariam argued addressing the issues of good governance is a matter of “process” where improvements are made in public services delivery in some areas – such as power provisions in some districts – while more needs to be done in responding to complaints from residents of regional towns. He rather wants to see complaints on governance to be more specific than remain in the abstract.

However, his sensitivity to the issue reveals how much thin his administration’s skin is to the growing demand from the public that quality in delivery of public goods and the accountability the bureaucracy holds have reached at a boiling point.

Not surprisingly, the Prime Minister showed his unyielding face responding to issue of the arrest and subsequent charges of bloggers, journalists and political party members, whom he accused, are involved in a “web” of attempted acts of terrorism, “from Asmara to South Sudan and Somalia.”

“There will be no government in paralysis in Ethiopia,” the Prime Minister declared, in a tone that was sturdy as in a body language that was no less than obdurate.

Although nothing new since the era of his predecessor, the concern and allegations of stifling political dissent by the security establishment in the name of fighting acts of terrorism was reinforced last week, following the extradition from Yemen of Andargachew Tsigie. Secretary-general of Ginbot 7, an opposition in exile established in 2008, but outlawed by Ethiopia’s Parliament as a terrorist outfit, Andargachew has had a death sentence on his head, after an Ethiopian high court convicted him of crimes of capital punishment.

Whether or not his administration execute the sentence is yet to be seen, although the Prime Minister pointed out it is up to the head of the state of the country to use his constitutionally designated power.

“I’m not the President,” Hailemariam retorted to a grilling question from a reporter from a private paper who made a contradiction in his earlier public statement that there is no reason for retrial, while he was reserved from commenting on the executions of the sentence.

In a sharp contrast to his tough talk on these issues, the Prime Minister was forthcoming in pledging to review the central bank’s policy to allow local businesses use their investments in building assets used as equity contribution for loans.

“There have not been much of such cases up until recently,” Hailemariam said during the press briefing. “Now that the issue is emerging, the government is reviewing it.”

By Tamrat G. Giorgis
Fortune Staff Writer.

Published on July 20, 2014 [ Vol 15 ,No 742]



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