Sunday, April 21, 2024
BusinessCentral bank bans consignment payment for beef exports

Central bank bans consignment payment for beef exports

-Exporters must get full payment before shipping

– Experts are worried the move would hurt the country’s competitiveness

The National Bank of Ethiopia (NBE) orders exporters of beef to cease shipment under a consignment payment arrangement.

Consignment is a business concept in which a buyer, also known as a consignee, promises to pay a seller, or consignor, when the item is sold.

Ethiopian exporters have been using this approach to export beef to the Middle East, a significant market, but buyers have not been paying their bills, which is in foreign currency, for long.

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In a letter signed by Mehari Mengistu, who is the head of forex supervision at the National Bank of Ethiopia, banks have already been told that meat producers can only export if they get full payment from buyers abroad.

“Under consignment, exporters were getting paid on time, and it made up the vast majority of exports, which caused the country to lose much-needed foreign exchange,” the letter reads.

With the largest livestock population in Africa, the country exports a large amount of meat, but it brings in much less foreign currency than coffee, gold, flowers, and oilseeds. Ethiopia exported USD 109 million worth of meat in the last fiscal year. It is the eighth-biggest product in terms of bringing in foreign exchange. It is also the second fastest-growing export, with a 45 percent increase in 2021/22.

The strong demand in the Middle East and the strong economic activity in the region because of the rising price of oil helped Ethiopia stop its exports from falling for years.

Managers of the Association of Meat Producers and Exporters were happy with the central bank’s decision to cease exports of meat to other countries on consignment.

Managers of the Association of Meat Producers and Exporters were happy with the central bank’s decision to cease sending meat to other countries on consignment.

“It took a long time for the exporters to get their money. But if the new measure, which lets them get paid in advance, is put into place, they will be safe from any possible loss,” Abebaw Mekonnen, the association’s secretary general, said.

Under the consignment payment mechanism, producers were not allowed to export beef abroad if they did not get paid within 90 days, according to him.

“But the new rule will stop problems like that,” he said.

Despite worries, experts also agree with the new rule.

“It would stop exporters from having to wait for a long time to get paid by consignees. But I’m worried that it could hurt Ethiopia’s competitive position if other emerging exporters keep working under consignment,” said Binmelik Abdo, an industry insider.

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