Financial supply is one of the resources that play a significant role in economic activities and serve as the backbone. However, one of the main problems facing the development of the manufacturing sector in Ethiopia is lack of finance. This problem combined with other challenges in the sector has forced industries to produce only half of their capacity and the share of the manufacturing sector in the total national product is low.
Among the activities carried out by the “Ethiopia Tamirt” (Made in Ethiopia) national movement, which is one of the solutions that are being implemented to alleviate the problems of the industrial sector, is solving the problems in the provision of finance through a coordinated system.
Currently, the manufacturing sector, which does not have sufficient financial supply, cannot increase the national production capacity and realize the structural transition of the economy. With this in mind, Mamo Mihretu, governor of the National Bank of Ethiopia (NBE) said that priority has been given to enhancing a stable price and foreign exchange system to support the manufacturing sector, as well as maintaining the wellbeing of the financial sector.
According to him, the manufacturing industry sector needs high foreign exchange, stable price conditions and a sound financial system, so the bank has implemented various operational reforms to achieve these issues. This has a significant role in access to finance for the manufacturing sector.
The governor stated that the “Ethiopia Tamirt” movement will create an opportunity to support the manufacturing sector with special attention. The steps taken by NBE to fulfill its responsibility of creating a stable macro-economic environment will help increase the number of investors investing in the manufacturing sector.
“The National Bank is responsible for creating a stable macro-economic environment. It will perform various activities to create a stable and orderly monetary policy, a healthy financial system and an attractive investment environment,” he said. If a stable macro-economic environment is created, investors will be encouraged to engage in both manufacturing and other investment sectors. The bank has achieved good results in maintaining a strict monetary policy in the country, creating a stable price situation and regulating the supply of credit, he explained.
Last year’s 33.5% general inflation is decreased to 23.3% this year. The inflation rate of 36.1% for non-food items was reduced to 18.1%. It is planned to reduce the overall inflation to 20% at the end of the fiscal year. When there is such a stable price situation, investment in the manufacturing sector will register growth; the activities carried out on the monetary policy are contributing greatly to the development of the manufacturing sector.
According to Mamo’s explanation, measures taken to correct the outlawed credit system, not only contributed to the stabilization of inflation, but also helped banks to pay more attention to the manufacturing sector in the loans they provide. Bank lending is a critical input to a stable financial system. When banks lend properly to the productive sector, the financial system becomes healthy.
Mamo also pointed out that work is being done to make the loan collateral required by banks easier and more efficient when investors in the manufacturing sector request loans. Measures will continue to be strengthened to enable the financial sector to support productive industries in a meaningful way by realizing adequate financial supply.
The Ethiopian Development Bank is one of the institutions that provide finance to the manufacturing industry. Yohannes Ayalew (PhD), President of the Bank, said that the movement will help to solve the problem of lack of finance faced by the producers in a coordinated manner. The bank is providing loans to the manufacturing industry in the medium and long term.
According to him, the Ethiopian Development Bank is providing large loans to develop the manufacturing industry sector as the sector plays an important role in the development of the national economy by increasing productivity, creating job opportunities and making the transfer of technology and knowledge a reality.
The bank provides various incentives to the manufacturing industry through the provision of loans. As most of the producers are based in the agricultural sector, it is providing low interest loans to the borrowers of the agricultural sector. A procedure has been developed to avoid asking for additional property collateral by holding projects instead.
“If producers fail to produce, the country will be dependent on imported products and there will also be a shortage of foreign currency,” he said, explaining that the Development Bank is making efforts to reduce dependence on imported products and increase foreign currency earnings by providing loans to producers so that they can carry out their production activities efficiently. The bank’s performance has been improved after the reform. Its capital has reached 38 billion Birr, and it is earning more than 6.3 billion Birr annually. It has created the capacity to lend up to nine billion Birr.
According to the president, out of the 46 billion Birr loans that the bank provided in the 2022/23 fiscal year, 35 billion Birr was provided to the manufacturing sector. In nine months of this fiscal year, out of the 44 billion Birr loan approved by the bank, 30 billion Birr has been given to the manufacturing sector. The Bank’s provision of substantial credit to the manufacturing sector will help create capacity for structural economic transformation by producing import substituting goods and increasing exports.
“Small and medium enterprises are established and operate in all regions. Therefore, these producers have a key role in achieving equity. 18 billion Birr of the loans approved in the fiscal year was given to these enterprises. To increase the efficiency of the enterprises, the construction of sheds should be given a lot of attention,” he said.
The Commercial Bank of Ethiopia (CBE) is also indebted to the manufacturing industry in terms of financing. Abie Sano, president of CBE, said that the activities carried out by the “Ethiopia Tamirt” movement are creating the capacity to set the right path for the industrial sector. According to Abie, it is a great step forward for the movement to enable coordination among the stakeholders in the sector. Half of the loans provided by the Commercial Bank of Ethiopia are given to the industrial sector. Out of this, most of the financing is used for power supply. 90% of the bank’s loans are long-term loans.
The president also indicated that the bank is preparing to develop a system to provide loans to the manufacturing sector under special conditions. Mentioning that it is working to give priority to manufacturers that use local raw materials, he explained the efforts of the Bank to support the manufacturing sector with finance.
He said that the task of encouraging producers who use local raw materials should be done with special attention. Tax and customs issues should also receive due attention. In addition to this, investors who are engaged in the manufacturing sector are advised to enter the sector based on adequate research and preparation.
On his part, the Minister of Industry, Melaku Alebel, indicated that the “Ethiopia Tamirt” movement was launched with the main goals set in the ten-year development plan, namely improving the production capacity of the industrial sector; increasing foreign exchange; substituting import production and creating job opportunities; as well as improving the lives of citizens in general. Access to finance is an issue that needs a lot of attention. Therefore, the government will continue to strengthen provision of finance to increase role of the private sector in the industrial sub-economy.
Strengthening the manufacturing sector is a resource that boosts other sectors of the economy. For example, to increase agricultural productivity, modern agricultural equipment and to improve the efficiency of the service sector, there is a need for a productive sector that can produce the inputs in quantity, quality and speed. One of the ways to strengthen the manufacturing sector is to provide the necessary support and supervision to investors in the sector, especially in terms of financing.
Developing favorable legal frameworks including policies; expanding infrastructure provision; facilitating credit provision and providing accessible, efficient and quality services are mentioned among the supports. In Ethiopia, in order for the productive sector to replace the role of agriculture and lead the economy and to record continuous economic growth, it is necessary to give a quick and coordinated response to the problems faced by investors in the productive sector in terms of financing.
It should not be forgotten that the national movement of “Ethiopia Tamirt” can achieve its goals of improving the quality and competitiveness of industrial products, increasing the coverage of substitution of imported products, producing and selling industrial products that are competitive in the international market, and overcoming the shortage of foreign currency if there is sufficient financial provision.
In addition to this, the multi-faceted economic reform programs implemented by the government in the last five years have an important role in alleviating the problems in terms of financing, so it is necessary to work diligently for the implementation of the programs.
BY BACHA ZEWDIE
THE ETHIOPIAN HERALD WEDNESDAY 5 JUNE 2024
