SkyscraperCity banner
1 - 8 of 8 Posts

·
Registered
Joined
·
17,043 Posts
Discussion Starter · #1 ·
Development Bank of Ethiopia (DBE) revealed its five-year strategic plan in which it will give out an unprecedented amount of loans to the manufacturing and agricultural sectors, reaching 21.9 billion Br and 16 billion Br, respectively, by the end of the five years.

Meant to implement the government's five-year draft Growth and Transformation Plan (GTP), DBE's management board approved the strategic plan sometime in August.

The draft GTP, which is expected to be tabled to Parliament for approval in November 2010, aims to double agricultural production and increase the share of the industrial sector in the gross domestic product (GDP) to 17pc from its current 13pc. The sector is expected to take the leading role in the economy after 15 years.

While manufacturing and agriculture will enjoy the largest portion of the loan approval and disbursement planned for the next five years, the service sector is hardly mentioned in DBE's strategic plan.

"The service sector is not included in the planned allocation of loans just like in the GTP," Genene Ruga, vice president of DBE, told Fortune. "The bank plans to play its role in reaching the goals set in the GTP."

DBE, which was established in 1909 and has 32 branches, is the biggest loan provider for developmental projects in the country.

The private sector accounts for most of the loans that are planned to be approved and disbursed in the next five years. Of the 16 billion Br planned to be approved for agriculture projects, the private sector takes 15.5 billion Br while the rest goes to cooperatives. Out of the money planned to be approved for manufacturing, the total sum of 21.9 billion Br has been earmarked for the private sector.

The private sector will receive 10.5 billion Br to be disbursed for agricultural projects and 16.77 billion Br for manufacturing projects, according to DBE's strategic plan.

The previously cash strapped bank projects a healthy stream of income in the next five years to finance the loans it plans to approve and disburse. In previous years, the bank had to borrow money from Commercial Bank of Ethiopia (CBE) and foreign sources in addition to its loan collection to finance the loans it gave out.

In a turn of events, DBE expects to collect income from the sale of government bonds and from long-term soft loans to the amount of 11 billion Br and 10.1 billion Br, respectively.

The government bonds, to be issued by Ministry of Finance and Development (MoFED), have a six per cent interest rate on those with a maturity date of one to five years and seven per cent on those with a maturity date of more than five years. In a bid to target farmers, for whom this saving mechanism is meant to be introduced, the bank will also sell the bonds through CBE's 294 branches nationwide.

By the end of this fiscal year, DBE plans to have sold 200 million Br worth of government savings bonds and expects it to increase to 4.1 billion Br during the last year of the strategic plan.

DBE also plans to perform better in collection of interest on loans and paybacks in the next five years during which it plans to collect a total of 9.4 billion Br. It has projected collecting 4.76 billion Br and 3.79 billion Br from loans given to the manufacturing and agricultural sectors, respectively.

The rest is expected from micro finance projects which are funded under the Rural Financial Intermediation Programme (RUFIP) of the International Fund for Agricultural Development (IFAD).

These collections are expected to improve the bank's nonperforming loans (NPLs) which stood at 2.1 billion Br in the 2009/10 fiscal year, 22.8pc of its total loan portfolio. By the end of this fiscal year, it aims to have decreased its NPLs to 9.8pc. Should it succeed in doing so, it will meet the minimum quota set by the African Development Bank (AfDB) for all development banks on the continent, which is less than 15pc.

"Even though the National Bank of Ethiopia (NBE) sets the limit at five per cent, this does not apply to DBE as it is engaged in providing loans of a high-risk nature," Birhanu Taye, manager of the bank's Business Promotion and Communications Process, told Fortune. "Unlike CBE and other private banks, DBE provides medium and long-term loans that range from five to 10 years and 10 to 25 years, respectively."
 

·
Banned
Joined
·
16,927 Posts
It's amazing how fast they are implementing their strategy for the next 5 years. It was only announced something like 2 weeks ago, but there's been a steady stream of news from the different parastatals and gov offices.

FYI, as of last year, services account for the largest segment of GDP, having taken over from agriculture. However, industry's share of GDP still is too little and has basically stagnated, and at times decreased, even though it's been growing in double digits for the past few years. The reason for that is that agriculture is growing almost at the same level, and services are growing at above 12-13%. So even if the overall size of industrial output is rapidly growing, services are growing even faster, and agriculture is keeping up with industry (for instance, last year was the largest ever harvest).

Also, the government seems to have changed its focus in industrial production. In previous years, all the encouraging reforms and incentives were to promote industries for export. It has only marginally succeeded, if at all. As of this year though, their focus has turned towards promoting industries for import substitution. Personally, I think this is the best move. They are already putting in place several incentives, including a serious devaluation of the currency to deter imports (too steep a devaluation according to a lot of us).

Just some background for people who don't go to the Ethiopia section often.
 

·
Registered
Joined
·
17,043 Posts
Discussion Starter · #3 ·
Thanks abesha. Good background info.

I wouldnt worry about percentages too much, i prefer looking at growth of the manufacturing sector as a gauge.

Ethiopia, with Nigeria (and of course SA) are probably the only SS African nations which can get away with relying on domestic consumption in this way due to large populations.

The problem is that history has shown that these companies tend not to be as efficient and competitive as companies geared for export which have to compete on the global market. I think both should be developed as they have advantages and disadvantages.

I can see 3 hubs of manufatcuring appearing in Africa- Ethiopia/Kenya in the East, and Nigeria in the west.
 

·
Banned
Joined
·
16,927 Posts
The problem is that history has shown that these companies tend not to be as efficient and competitive as companies geared for export which have to compete on the global market. I think both should be developed as they have advantages and disadvantages.
True, but the reasons for pursuing this strategy at this time make sense. The incentives for export-oriented investments in manufacturing have not worked as well as they hoped. If we don't change gear, the result may end up being the same the next 5 years. Second, even those who set up shop may not be able to produce goods for exports in a good enough quality to be successful.

One of the problems of the previous policy was that it was cheaper to import things like medicine than to import the raw materials to produce it within the country. This made it very very difficult for local pharmaceutical producers to sell their goods even in Ethiopia, let alone to export. You see the problem?

The main benefit of import substitution is the savings in foreign currency. We do not have oil or minerals to bring in that, whereas the consumption of the middle class is booming. They want products that are not currently produced within the country (or are of bad quality). This has to change. We have to be able to keep the wealth created within our borders.

The good thing is, we are starting to see some industries popping up in areas where there are large imports. For instance, the automotive industry (for cars/small trucks only) is growing rapidly. The first assembly plant was set up in 2005. As of 2010, of the top of my head, there are some 6 or 7 different companies. The textile and garment industry is booming also; Samsung is setting up an assembly plant for household electronics; steel production is increasing, etc.

Once these industries strengthen within the country, they can then start exporting their goods to other African countries (which is their plan anyway). We can't compete with the big leagues yet.

However, the private industrial zones currently u/c are going to cater to foreign industries, so they will probably be exporting a lot of their production.
For instance, the textile investors in the country export most of their production to the US (AGOA) already.
 

·
Registered
Joined
·
17,043 Posts
Discussion Starter · #5 ·
True, but the reasons for pursuing this strategy at this time make sense. The incentives for export-oriented investments in manufacturing have not worked as well as they hoped. If we don't change gear, the result may end up being the same the next 5 years. Second, even those who set up shop may not be able to produce goods for exports in a good enough quality to be successful.

One of the problems of the previous policy was that it was cheaper to import things like medicine than to import the raw materials to produce it within the country. This made it very very difficult for local pharmaceutical producers to sell their goods even in Ethiopia, let alone to export. You see the problem?

The main benefit of import substitution is the savings in foreign currency. We do not have oil or minerals to bring in that, whereas the consumption of the middle class is booming. They want products that are not currently produced within the country (or are of bad quality). This has to change. We have to be able to keep the wealth created within our borders.

The good thing is, we are starting to see some industries popping up in areas where there are large imports. For instance, the automotive industry (for cars/small trucks only) is growing rapidly. The first assembly plant was set up in 2005. As of 2010, of the top of my head, there are some 6 or 7 different companies. The textile and garment industry is booming also; Samsung is setting up an assembly plant for household electronics; steel production is increasing, etc.

Once these industries strengthen within the country, they can then start exporting their goods to other African countries (which is their plan anyway). We can't compete with the big leagues yet.

However, the private industrial zones currently u/c are going to cater to foreign industries, so they will probably be exporting a lot of their production.
For instance, the textile investors in the country export most of their production to the US (AGOA) already.
Good stuff. I would also suggest tax-free imports on key industrial raw materials. if not done so already.

So the Samsung thing is still on?
 

·
Banned
Joined
·
16,927 Posts
I think they're starting to do that; I'm pretty sure I read something along those lines (tax free imports for key inputs).

There hasn't been follow up on the Samsung thing by the media, but that's probably due to Ethiopia's notoriously scarce availability of information.

We'll probably hear about it again when it gets inaugurated.
 

·
Still Comin' Out Strong
Joined
·
16,190 Posts
Abesha I read in an article not too long ago, on All Africa or possibly posted by one of you Ethiopian users, and it said how the government wanted to be food sufficient by 2015. Ironically, I'm guessing this is apart of the five-year manufacturing and industrial plan.

In my opinion, a great way to harness the rapidly growng agricultural industry and tap into manufacturing would be to encourage investment in processing factories, etc. I don't know much about Ethiopia's agricultural sector, or economy in general, but from what I've gathered over the years its evident most African nations just export agri-products right after they come out of the ground. Instead of exporting them raw, process them in Ethiopia and it can give a jolt to the industry and agricultural sectors of the economy. It could be a right, small step in the direction of attracting more forms of industry.
 

·
Registered
Joined
·
4,954 Posts
ethiopia is really doing some phenominal things. unlike other african countries, ethiopia is investing in old school vital programs. schools, transportation infrastructure, agriculture, healthcare unlike many african countries.

i am very impressed by ethiopia. they are investing in those absolutely vital foundations social and economic sectors of the country. did i mention 11% economic growth???

very impressed by ethiopia
 
1 - 8 of 8 Posts
Top