The prolonged foreign currency retention rule the National Bank of Ethiopia (NBE) put in place a year and a half ago crippled chemical input import-dependent leather industries, their lobby group decries.
Repetitive attempts by the industries and their association to be exempted from the mandatory rule that forces them to surrender 70 percent of the foreign currency earned from exports remain unsuccessful.
The NBE issued a directive at the beginning of 2022 requiring all exporters of goods and services to give the government the majority of their foreign currency earnings. While they access only 20 percent, their respective commercial banks get 10 percent.
In their latest calls to the Ministry of Industry and the central bank, the Ethiopian Leather Industries Association requested the right to access at least half of their export-earning currencies while surrendering the other half, only to have their pleas unanswered, management of the Association told The Reporter.
President of the Association, Redman Bedada, said even the 50 percent they requested to access is not enough for their sector considering the high cost of chemical inputs that cannot be substituted locally.
“We requested the 50 percent allocation given the situation the country is under in relation to the shortage of foreign currency, but this isn’t even enough for the industries,” he said.
Referring to the studies conducted by the Leather and Leather Products Industry Research and Development Center, Redman said about 96 percent of inputs other than hides require foreign currency. From the 46 types of chemicals they use, only four percent can be produced locally.
The president said procurement of hides now makes up to 40 percent of the total production cost, with high priced chemicals making up to 60 percent of the cost. Best practice globally shows that procurement of hides is around 70 percent of total production costs, as costs of other inputs do not exceed 30 percent.
“The NBE directive is challenging our sector now that several of the industries have stopped their operations. The sector has several problems, but the foreign currency retention rule is the major one,” Redman explained.
The Association has about 150 member industries, of which 24 are large-capacity shoe producers. Reports show that there could be about 7,000 small-scale registered leather goods producers that are not members of the Association.
Half of the Association’s members are foreign direct investors, whose main existence depends on foreign currency access, the president argues.
“Several industries are now closed, and those in operation are working at 30 to 40 percent of their capacity. We have been warning the officials of the consequences for a long period of time, even when the allocation was 60/40,” he said.