Ethiopia’s coffee industry has continued so far being among the leading sectors in foreign currency earning. However, coffee growers are suffering of financial shortage especially during harvesting seasons. Aiming to relieve problems of such kind, National Bank of Ethiopia (NBE) allowed commercial banks to lend 12 billion Birr from their reserves to the businesses across the country of which coffee sector is one of the beneficiaries.
According to Fikadu Digaffee, Vice Governor of NBE and Chief Economist, such a decision is said to be a unique of its kind; the measure gives green light to the banks to use up to two percent of their reserve for this loan schedule.
While making an interview with the local media recently, the Vice Governor said that long ago, the National Bank tried its level best to support businesses which suffer from financial constraints. Being one of the trials, the decision is expected to solve the cash hunger faced by growers, suppliers and exporters of coffee for harvesting process that needs finance to pay daily laborers and collect products from the farmers.
During the time when the government put restrictions on loans, actors in the coffee value chain including Coffee farmers in the South Western Ethiopia have been complaining of facing shortages of finance to be used to collect their products that otherwise resulted in loss of their coffee beans.
Even though the ban of loan was totally lifted last month, banks are not in a position to meet the needs of the coffee sector because of liquidity challenges faced due to an increase in reserve requirements, from five to ten percent in September 2021.
“We have given permission for commercial banks to use two percentage points of their reserves, lowering the requirement to eight percent, so that they provide loans for the coffee business,” Fikadu said, adding the decision would enable coffee producers meet the USD 1.1 billion export target for this budget year.
Husein Ambo (PhD), ChairPerson of the Ethiopian Coffee Growers, Producers and Exporters Association welcomed the latest decision of the Central Bank. He said that getting finance has been a daunting task lately leading to a loss of coffee product which is affecting the export sector. The shortage of working capital surged drastically because of the increasing price of coffee in the local market.
The action taken by the National Bank is also received as a positive sign among the executives of commercial banks. In this regard, Teferi Mekonen, President of Oromia Bank said that the decision was made based on their request and it is timely. It is believed that it would boost the financial capacity of the stakeholders in the coffee value chain and avert the financial constraints that prevailed for long.
Coffee is the fourth commodity of Ethiopia’s total export earnings which stood at USD 3.6 billion during the last fiscal year and almost six million quintals of coffee was produced during the last Meher season in 2021. Exports account for half of the total coffee production while the rest is consumed locally.
“Coffee is a different crop by its nature as it is easily spoiled when not harvested in time and processed with great care. So, we should not be treated like any other businesses,” said Hussien, urging commercial banks to provide the finance as soon as possible.
The new rule will be applicable until the end of July 2022. However, banks will be required to attain the 10 percent reserve criterion when the deadline ends.
Ethiopia has 21 commercial banks operational across the country of which two of them are providers of full-fledged interest-free banking services, whereas the rest provide conventional financial services. Until the end of last year, outstanding credit in the banking industry reached 1.3 trillion Birr, with total deposit surpassing 1.4 trillion Birr during the same period.
On another development, the Ethiopian Coffee and Tea Authority announced that it is working to boost exports by further expanding its market destinations to China and Russia.
The Market Development and Inspection Sector Deputy Director of the Authority Shafi Omer said that motivated by the recorded high income in the last fiscal year, the authority plans to increase the production this year and is eyeing to widen the market by penetrating new coffee buying countries.
He further said that China and Russia are attractive and potential countries that could be the new destinations. Therefore, the authority would do various activities to promote Ethiopian coffee in these countries.
Ethiopian coffee is widely supplied to countries such as Saudi Arabia, Germany, North America, Japan, South Korea, Belgium, France, Italy and Sudan. The Authority targets to earn USD one billion in the new fiscal year and to this end, extra effort should be exerted to expand the market to the newly emerging markets.
Apart from market digging activities, the Authority is focusing on proper collection of coffee ready for the export market and training coffee growers on how to harvest their coffee properly.
Shafi further explained that the Authority plans to participate in international coffee exhibitions, an activity that has been suspended due to the COVID-19 pandemic.
There are exhibitions that will be hosted by the US in the coming September which is followed by other exhibitions in Japan, South Korea, Europe and the UAE consecutively. These are important to promote Ethiopian coffee abroad, and the Authority is encouraging coffee exporters and other stakeholders to partake in the exhibitions to display Ethiopian specialty coffee.
According to the Authority, even though the volume of coffee exported last year had decreased, the income generated was high registering a record since 2017. One of the reasons for such achievement is related to rising of coffee price in the world market. For instance, a ton of coffee was sold for USD 4,000 which is higher when compared to the previous year that was USD 3,700.
The Authority plans to provide 280,000 tons of coffee to the international market aiming to generate USD 1.04 billion in the new fiscal year.
Currently, Ethiopia is aspiring to boost export market so as to enhance foreign currency earning capacity. As a result, strengthening the integration of the nation’s economy with the rest of the world, both import and export trade will be booming. But there is a huge gap between export and import trade in which export trade takes the upper hand. In fact, in order to achieve economic development, Ethiopia needs to import more capital goods such as machinery and tools for the expansion of manufacturing. In addition, it has to increase the importation of agricultural inputs such as fertilizer, chemicals and water pumps. Therefore, to meet the needs of the nation’s foreign currency increasing its capacity is a burning issue.
Currently, due to the shortage of hard currency, industries are unable to produce in their full capacity as a result of shortage of inputs that are imported from abroad.
In order to balance the deficit, the government employed various mechanisms such as getting loan from multilateral institutions like the World Bank and the International Monetary Fund. It also obtains in the bilateral agreement from loan provider countries but such mechanism will leave the nation to be dependent to the foreign source.
Therefore, to reverse the situation, the government of Ethiopia utilizes two ways in which one is boosting export and the other is encouraging Diaspora Ethiopians to enhance the sending of remittance in the formal channel through Banks. The current inflow of the Diaspora community to their motherland responding to the Great Homecoming Challenge initiated by Prime Minister Abiy Ahmed created good opportunity to the country to garner additional hard currency. Such venture also helps to restore infrastructures demolished by terrorist TPLF in Afar and Amhara regions, it was learned.
BY ABEBE WOLDEGIORGIS
THE ETHIOPIAN HERALD SUNDAY EDITION 13 JANUARY 2022
