Fortune News | May 25,2019
September 10 , 2021
By HAWI DADHI
Authorities at the National Bank of Ethiopia (NBE) have given commercial banks the nod to issue letters of credit (LCs) to close to 170 importers interested to bring in 3,200 cargo trucks.
It is an extension of a decision from the National Logistics Council, a 10-member body, including representatives from the ministries of Transport and Trade, the Transport Authority and the Freight Forwarding & Shipping Agents Association, to import cargo trucks in a bid to alleviate logistics hurdles and avoid congestion at the ports in Djibouti.
The latest instructions were issued after the central bank approved the applications, brought to its officials' attention through the Federal Transport Authority. The importers have secured suppliers credit for over two years to import these trucks. They have to deposit the value of the imports with the dollar exchange rate at the end of the maturity period. Banks would issue letters of credit, and during the time of the settlement period, the central bank will transfer the equivalent amount in foreign currency.
It is a rare move in a country with a critical shortage of foreign currency, with reserves only sufficient to cover two and a half months worth of imports.
Officials at the Authority believe the letters of credit permit would be instrumental in solving bottlenecks in logistics, which is under duress due to a shortage of shipping containers and a surge in shipment costs, adding to pre-existing problems, including the congestion of ports.
"Even though it may not solve the logistics hurdles for good, it's part of the solution for the challenges facing every actor," said Abdulber Shemsu, deputy director at the Authority.
Not many trucks have been imported in recent years because of the shortage of foreign currencies. That has been causing a rise in the prices of commodities the government considers strategic, including fertiliser and wheat, and delay of food aid. About 13,000 trucks, each with a load capacity of 250 quintals, are available in the country. The trucks to be imported are expected to double this capacity.
"There are times when operators of freight forwarding trucks are forced to transport strategic items on government orders," said Elizabeth Getahun, president of the Shipping Agents Association.
The Authority floated a bid to choose the suppliers at the beginning of this year. Two companies were shortlisted first. However, officials at the Authority resorted to registering interested applicants. Out of 968, less than a third fulfilled the requirements set by the Authority, including proof of suppliers credit with a maturity period of at least two years. The Authority used the requirements as an input to pick 166 companies from the finalists.
The applicants showed interest to buy a total of 10,000 trucks.
Some are unhappy with the selection process. No one from the Transport Employers' Federation's has participated in the selection process.
A study needs to be conducted to identify the root cause of the logistics problem, argues Dejene Luche, public relations head of the Federation. He believes failing to use trucks already in operation efficiently is at the heart of the problem.
"We know how much time trucks spend stuck at the ports," Dejene said. "I'm not sure how effective [buying new trucks] would be."
Executives of banks are also concerned. They see the scheme as more advantageous to the suppliers abroad. The suppliers can use the letters of credit issued to take out loans at lower interest rates, fears a senior executive of one of the private banks.
Institutions designated to benefit from the letters of credit permit have begun processing the procurement of the trucks. The Ethiopian Shipping & Logistics Service Enterprise (ESLSE) is preparing a bid document to select suppliers that would buy 150 trucks with this scheme, which will bring its total to 670. It was only allowed to buy 42 trucks initially.
It does not only help to solve port congestion but is also instrumental in improving the delivery of service across the logistics sector, according to Wondimu Denbu, deputy CEO for corporate services at the Enterprise.
PUBLISHED ON Sep 10,2021 [ VOL 22 , NO 1115]
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