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Gov’t showers manufacturers with incentives

90 percent non-collateralized credits for investors entering Hawassa Park

Winning over ten global giants in textile manufacturing to harbor in the newly built Hawassa Industrial Park, the Government of Ethiopia has proposed a highly generous incentive package to all local manufacturers willing to set up shop at the newly built industrial park located in Hawassa town, capital city of the Southern Regional State.

Arkebe Okubay (PhD), special advisor to the Prime Minister, told a group of manufacturers yesterday that the government is ready to avail non-collateralized credit facilities at a credit to equity ratio of 75/25 and 85/15 depending on the projects capital requirement and whether the investors are willing and capable of leasing in the Hawassa Industrial Park.

The 75/25 proportion will be applicable for long-term credits which the Development Bank of Ethiopia (DBE) is set to provide. The investors are expected to avail 25 percent of the equity in cash or asset and the bank will be financing the remaining 75 percent without any requirement of physical collateral. In case of a working capital, the government vows to avail a credit facility at proportion of 85/15 percent where investors are expected to put up15 percent in form of equity.

According to Tadesse Haile, state minister of Industry, the equity finance is mostly preferred to be paid in cash. But, there is a room for those who can bring well-kept machineries or equipment. In that case, the proportion can go as high as 90/10, Arkebe said. Furthermore, net exporters will have a reduced railway tariff exclusively reserved for manufacturers at the park once the railway route passing through is up and running.

Fitsum Arega, commissioner of the Ethiopian Investment Commission, said that a ten-year tax exemption for both local and foreign investors has been instituted together with a 28-day of retention of foreign currency at the hands of the investors.

According to Tadesse, manufacturers, who exclusively produce for the export market, will also have the advantage of a reduced Letters of Credit (L/C) processing fee in order of 0.5 percent as opposed to the ordinary 3.5 percent commission charged for processing L/C. “It is way too expensive and exaggerated,” Tadesse said. The new LC processing fees will be offered by the Commercial Bank of Ethiopia (CBE) and DBE, according to Tadesse. Studies conducted by the Ministry of Industry confirmed that the banking industry has been charging exporters a daunting sum as commission to process LC compared to many countries, Tadesse said. And that has to change, he added.    

Apart from that, Arkebe outlined the government’s readiness to conduct feasibility studies on behalf of investors. He also mentioned that public agencies will provide production layouts and equipment specifications should investors need it. Shortlisted international suppliers will provide equipments and machineries and a document that details the mechanism will be provided for the investors by the government.

The only payments local investors are obliged to make during entry to the park is lease payments for the factory sheds and private equity contributions. Apart from that, the government also promises to provide all the needed services in the form of a package in the industrial park ranging from banking, customs clearance, electric power, telecom, water and the like. According to Arkebe, the park will have 50 MW electricity supply at the initial phase and it is expected to grow to 150 MW in due course.

Arkebe also announced that ten big global players in the textile sector have already secured factory sheds in the newly built park. Among those, PVH, Vanity Fair from the US, Arvin and Remount from India and other big players from Sri Lanka, Indonesia, Hong Kong and China have obtained sheds in the park.

The government aims to generate one billion dollars per year in form of export revenue and create some 60,000 jobs from the Hawassa Industrial Park.  However, since Hawassa could not fulfill the housing needs for the workers, the government has arranged a mechanism where residents of the town will be provided loans to construct 12,000 new low cost houses within their compounds so that they can rent it to factory workers.   

Though the government offered local investors sheds at the Hawassa Industrial Park last month, no investor responded to the invitation of the government; now the newly proposed incentives have surprised many in the manufacturing sector.

The Hawassa Industrial Park is expected to be partially completed by end of May. All in all, the governments have adopted a strategy of clustering manufacturers in industrial parks. And so far, around seven parks are in the pipeline for which the government allocated USD 750 million, which it secured from issuing a sovereign bond in 2014, and the rest 250 million dollars will be financed by the lending arm of the World Bank, the International Development Association.