Tigray industry bureau requests interest waivers, credit lines for struggling manufacturers

The Tigray Transitional Administration’s Industry Bureau has filed an official request with the federal government to waive interest on loans taken by businesses in Tigray prior to the northern war. The Bureau has also requested decreased interest rates for new credit lines opened in the regional state.

The requests are two of nearly two dozen included in an official letter to the Office of the Prime Minister, the National Bank of Ethiopia (NBE), the Ministry of Industry, and the Investment Commission.

The Transitional Administration wants to see three years’ worth of interest forgiven, and new credit interest rates cut down to as low as nine percent. The Bureau hopes to see the extension of the one-and-a-half-year grace period granted to borrowers in Tigray by commercial banks. Leeway regarding the five-percent ceiling on non-performing loans (NPLs), investment incentives, and solutions for the supply of raw materials are also on the table.

The Administration has requested the establishment of a project office, in Mekelle, directly linking the Bureau with the federal entities listed above, and for the implementation of an intervention policy specifically tailored for regions where industries have been completely destroyed.

Items related to customs, tax relief and privileges, and investment incentives were also included in the letter.

Mehari Hailemicheal, Head of the Tigray Industry Bureau, observes the regional state’s federal subsidy requests are being treated the same as those of other regional administrations, which were not directly devastated by the fighting.

“Tigray’s industry has been fully destroyed and rendered inoperational by the war,” he said. “Our pleas for support should not be weighted equally to regions that were never directly affected by the grim effects of the war.”

Tigray accounted for close to 13 percent of Ethiopia’s total industry GDP growth, nearly 10 percent of which was attributed to manufacturing industries, before the war began in November 2020.

No less than 6,378 small and medium enterprises, as well as 60 factories, were destroyed during the war, according to Mehari.

He believes the only way to convince federal authorities for a swift solution to the problems is to show them the extent of the damage.

Mehari’s office has yet to garner any meaningful results from its discussions with the senior federal officials. The most recent of these were talks with Taye Dendea, former Ministry of Peace official, who was in Tigray with his team a week before he was relieved of his duties via a letter from the Prime Minister.

The Bureau is arranging a platform for discussions between 250 investors with holdings in Tigray, Addis Ababa, and Oromia, and federal authorities. Mehari and his colleagues want to see the Prime Minister, central bank, ministers of Industry and Finance, and the presidents of commercial banks convene to address the region’s industry challenges.

Samson Girmay, a representative of the Tigray Machinery Manufacturers Industry Sectoral Association (TMMISA), told The Reporter members of the Association are forced to buy raw materials secondhand from a market in Mekelle called “Medeber.”

At least 50 Association members are struggling with the problem, according to Samson.

“Each company wants at least two million birr in capital finance loans,” he said.

Meareg Hagos, an Association member, runs a company that has been forced to change its field of production as a result of damages sustained during the conflict.

Meareg says he had no access to stainless steel, roller chains, heat registers, and other equipment that he needed to manufacture small cutlery machines. He believes that companies like his in Tigray require at least 10 million birr in loans apiece if they are going to get back on track.

He urges commercial banks to consider the situation when reviewing proposals and collateral.

“Banks want us to provide property as collateral while we are struggling to survive,” says Meareg. “We do not have it.”

Yohannes Ayalew (PhD), president of the Development Bank of Ethiopia (DBE), told The Reporter proposals from TMMISA are under review. He says the DBE does not require property collateral to disburse credit.

“Whether it’s two or 10 million, the Bank can afford it, if [the proposals] are viable,” says Yohannes.

DBE plans to extend 51 billion birr in credit this financial year.

Mehari, however, argues that banks are not doing enough.

“They provide loans with interest rates of up to 20 percent, which is not acceptable to the damaged businesses,” said the Bureau head. “They simply don’t have the capacity; the rate should be cut down by half, at least.”

A recent study conducted by the Tigray Chamber of Commerce indicates by November 2021, banks and microfinance Institutions in Tigray had provided businesses a credit sum of 31 billion birr, which has since accrued a staggering 30 billion birr in interest.

“Interest rates ranged between 14 and 17 percent to begin with,” said Atakelti Kiros (PhD), the lead researcher. “But, what stunned us was finding out that at least three banks have utilized credit agreement clauses enabling them to push the rates to up to 20 percent, without obliging them to notify borrowers until after the fact.”

He explains that during the war, banks used the increased interest to further their own business activities, leaving borrowers in Tigray caught between a rock and a hard place as the banks demand payment.

Mehari argues that solving the debt and credit line issues needs to be supported by a stable flow of raw materials and market linkage.

He calls on federal sectoral industry institutions, such as those dedicated to metals, textile and leather, to conduct thorough studies on “all levels of the state structure.”

“They could look for solutions within the country, like navigating possibilities of textile factories in Addis Ababa, Adama or Kombolcha providing raw materials to industries in Tigray,” said Mehari.

The Bureau is currently working with federal institutes to determine the raw material demand of Tigray’s textile manufacturers.

Source: The Reporter Ethiopia

Leave a Reply

Your email address will not be published. Required fields are marked *