Ethiopia’s ongoing macroeconomic reforms, implemented six months ago, have significantly impacted the manufacturing sector, with the demand for birr doubling during this period, according to Industry Minister Ato Melaku Alebel. Speaking at the House of People’s Representatives today, the minister outlined the challenges and achievements in financing the manufacturing industry while emphasizing the need for further structural adjustments to sustain growth.
Minister Melaku revealed that although the government had initially planned to provide 3.4 billion birr in operating loans and lease financing to small and medium-sized manufacturing industries, 7.8 billion birr was disbursed over the past six months. This amount exceeded the planned figure by 4.4 billion birr and marked significant growth compared to the same period in 2016.
For high-yielding industries, a target of 28.7 billion birr was set. However, only 24.87 billion birr was provided, falling short of the goal. Despite this shortfall, the disbursed amount reflects a 4.9 percent increase compared to the same period last year, indicating progress.
The minister noted that the demand for birr in the manufacturing sector has doubled due to the macroeconomic reforms, further straining financial resources. He emphasized that the current supply is inadequate to meet the growing needs of the sector.
To address this gap, the minister called for banks and non-bank financial institutions to play a more active role in financing manufacturing industries. He criticized banks for prioritizing low-risk, short-term profit ventures over long-term investments in manufacturing. To counter this trend, the government has issued policy directives to raise the share of bank lending to the manufacturing sector to 24 percent.
Melaku highlighted improvements in lending rates for the sector. The rate of lending to manufacturers, which previously stood at 13 percent, has now increased to 16.3 percent. Similarly, lending to small and medium-sized industries has risen from less than 1 percent of banks’ capital to 10.3 percent.
The Ethiopian Development Bank has also made strides in reducing delays in lease financing, improving access to funds for manufacturers.
On the issue of foreign currency, the minister reported that the government had planned to allocate $468.4 million to the manufacturing sector in the first half of the 2017 fiscal year. However, only $369 million was achieved, partly due to high deposit requirements imposed by banks. In comparison, $274 million was allocated during the same period in 2016.
In his address, Minister Melaku stressed the importance of aligning financial policies with the demands of the manufacturing sector to sustain growth. He called for reforms to ensure sufficient and effective financing, emphasizing that the success of Ethiopia’s macroeconomic reforms depends on the robust support of the financial sector.
While progress has been made, the minister highlighted the need for intensified efforts to close financing gaps, meet the growing demand for birr, and unlock the full potential of Ethiopia’s manufacturing sector.
Source: Ethiopia Insider
