The clock is ticking, for a busy nation where a huge number of youth rushing for a job, on developing public and private firms. In connection to this, the Small and Medium-sized Enterprises (SMEs) have usually been perceived as the dynamic force for sustained economic growth and job creation in developing countries. We know that SMEs are playing multifaceted roles such as boosting competition, innovation, as well as development of human capital and creation of a financial system.
One point we could discuss here is that SMEs are the sole way out to the increasing urban population dynamics of nation. They are becoming important urban economic activities particularly in providing urban employment. In similar fashion, in cities and various parts of the states’ towns of Ethiopia, SMEs and the informal sector are the predominant income generating activities and thus, they have a significant contribution to local economic development and used as the basic means of survival.
Although the enormous importance of the SMEs sector to the national economy with regards to job creation and the alleviation of abject poverty, many of the SMEs are unable to realize their full potential due to the existence of different factors that inhibit their growth and performance. One of the leading factors contributing to the unimpressive growth and performance of the enterprises is limited access to finance.
To do away the challenges various approaches had been designed to offer Small and Medium Manufacturing Enterprises with lease financing-and a capital goods’ financing service – via the Development Bank of Ethiopia (DBE).
This writer has the opportunity to visit Tesfanesh Moges who is a resident of Arada Sub-city in Addis Ababa; she owns a private company called Yeroonsun Garment. She told the writer the challenges she had passed through in making her dream a reality through lease financing.
According to her, the economic benefits of leasing can be derived from the firm’s choice of leasing relative to borrowing and acquiring the asset. The essence of leasing is reflected in the proposition that leasing provides customized financing with potentially unique cash flow and tax features. She says, “Lease financing is a game changer firms that could achieve their objectives of maximizing share holders by making successful investment decisions, which generate positive net cash flows.
“After a hectic journey of bureaucracy and procedures, I have imported a 1.2 million sewing machine from Japan that transformed my career and changed the way I should look at things. Access to business finance plays very important role for any business startup and growth. Finance is a good indicator of the health of the company overall, in my view lease financing is very important.”
Tesfanesh also added, “The amount of collateral that had been required has increased from the very beginning; it was once 20 per cent but it changed to 33 percent that was the major challenges that I faced. Today, I am planning for export and making preparations. I hired 15 human capitals but planned to increase to 78 in the year to come.”
She keeps saying that the garment is demanding huge finance; “But I am run out of capital to run the business. Since the finance journey is continuous and there may never be an arrival point. Businesses need to make sure there is the finance to back their growth plans.
“My PLC needs running cost finance because we would like to be able to access the right type of finance at the right time that allows businesses to invest, grow and create jobs. I hold that a good understanding of the options available is an essential starting point and enables businesses to select the type of finance that is right for their circumstances and plans. As the ticking, I had determined to face the challenges around me and let my dream come true through lease financing,” she added.
This writer has the opportunity to learn the performance of Development Bank of Ethiopia (DBE) where lease Financing services are being expanded as the form of hire-purchase transaction with a view to supporting SMEs in the country.
Development Bank Director, Advisor to the president Kifle Haile Eyesus told The Ethiopian Herald that the services go along with nation’s strategic pillars of supplying alternative finance modality. As to him, the DBE has approved hire- purchase agreement for 780 SMEs with the amount of over 5.7 billion Birr and disbursed over 1.47 billion Birr so far. “DBE also eyes to widen the provision of services in bid to creating stable macro economic environment pursuing aggressive and rapid industrialization and structural transformation,” he added.
“The Bank has received 1,623 lease financing applications of SMEs and approved 780 of them,” he said adding that since the establishments of the bank, around 132 projects have been executed using lease financing service. The Bank is offering the services to actualize nation structural transformation, more importantly aimed to easy the challenges access to finance for SMEs particularly the missing middle as well as import substitution, promote export promotion objectives of the country and support foreign exchange earnings.
The service is availed to respective SMEs in the form of capital goods financing under the ‘Hire- purchase’ modality. As to the requirements, Kifle indicated that the applicant should be registered with capital of 500,000 to 7.5 million as well own manufacturing premises either from their own or rental basis.
According to him, applicants should come up with a business plan or feasibility study for their projects. “Those SMEs that requested up to 10 million Birr should require to submit a business plan whereas whose requests above 10 million to 30 million should submit feasibility study. The DBE is conducting periodical amending lease financing policy, procedures or/ and guidelines which incorporate relevant issues to address the SMEs lease financing demand early,” he stated.
BY MENGISTEAB TESHOME
Modern irrigation to enhance production, productivity
Ethiopia has a potential of total arable land of more than 70 million hectare.
Experts indicate that Ethiopia’s climate is favorable for agriculture. In addition, this vast fertile land with untapped water resource makes the country proper for irrigation and agriculture.
The availability of adequate water supplies, arable land as well as government’s commitment to the sector and competitive human powers are among the great opportunities to widen small and large scale irrigation in the country.
Researches also indicate that the country has a potential of total arable land of more than 70 million hectares in which the nation is able to exploit only 12 million hectare of land. The population engaged in agriculture is estimated to be 80 million. Some years back, the country introduced ‘Water Master Plan’ to be adopted and implemented for cultivating a bumper irrigation projects throughout the country.
Currently, the construction of mega irrigation projects in different parts of the country is reaching completion. Enhancing agriculture seeks coordinated work on modernizing irrigation to promote production and productivity.
The farmers have noticed a visible production and productivity increment while practicing irrigation,
“With abundant water resource and actually referred as ‘the water tower of Africa’, the country has been facing continues drought in the past. Even if the country is home to longest and huge yearlong flowing rivers in every corners of the country, the nation has cultivated not more than 2.8 million hectares of land last Ethiopian fiscal year. And the following year’s, irrigation national plans irrigating 3.3 million hectares [with production volume of 469 million quintal] this fiscal year,” Ministry of Agriculture and Natural Resources Smallholder Horticulture Development Director Dereje Yigezu said.
Currently, farmers nationwide are aware of the benefits of producing market oriented fruits and vegetables as well as export oriented cash crops, he adds.
According to him, the development of horticulture crops through irrigation is better than that of seed crops. “Ethiopia has been facing adverse challenges of climate change that manifested recurrent drought happening within a five-year period and has affected its crop production and productivity,” he added.
Dereje further said that farmers across the country also witness the tangible role of the sector improving their livelihood. He also said that expanding sustainable irrigation mechanisms requires determined moves of the sector’s practitioners assisted with competent researchers, agricultural extension workers and increased stakeholders’ participation.
Promoting modern and technolo-gically assisted irrigation farming practice should be done prioritizing a wide-range of irrigation to bring a paradigm shift in the sector in which it requires transforming and developing the pastoral states and rain shortage areas, he underlined.
Ministry Small-scale Irrigation Development Expansion Directorate Director Elias Awol told this reporter that the ministry is undertaking mechanized and small-scale irrigation development countrywide. The introduction of easily operational irrigation technologies is also showing a remarkable progress at the farmers’ field, according to him.
“The ministry is distributing drip irrigation, furrow-irrigation, environme-ntal co-friendly solar-powered pumping and other irrigation technologies solar-powered water pumps to the farmers countrywide. Solar-powered pumping technology is currently on pilot test in two states: Oromia and Southern Nation, Nationalities and Peoples States,” he added.
According to Elias, the solar-powered pumping technology showcases the country’s deep commitment to building climate resilient green economy.
Regarding furrow irrigation, Elias said, “It is not practiced properly in some parts of the country due to low awareness of leading the water lines flow from high to low and flow correctly.
“Directly or indirectly the nation is transforming from a rain-fed agricultural system to an irrigation reliable agricultural system following the determined demand of the farmers. The farmers have noticed a visible production and productivity increment while practicing irrigation,” he added.
He also emphasized the need to allocate huge budget to develop wide scheme irrigation infrastructure networks. “Compared to other countries, Ethiopia, though it is with greater water potential, has been gaining lower from irrigation agriculture. Researches in the area indicated that it is possible to irrigate more than 10.1 million hectares of land in the nation these days.”