ASSESSMENT OF THE CHALLENGES OF USING EXPORT CREDIT GUARANTEE (ECG) SCHEMES OF THE DEVELOPMENT BANK OF ETHIOPIA PROVIDED FOR PRIVATE EXPORTERS

Abstract

Export plays vital role for the development of any nation. As no country is self sufficient in every need that its society has, it exports those items which has a comparative advantage in the production, processing and exporting quality products with a competitive price and in return imports those items which have a lesser competitive advantage. Developing countries, like Ethiopia, have a comparative advantage on agricultural products while developed countries have a comparative advantage on industrial goods as their companies found on the higher level of technology and hence the cost of production of that item is relatively cheap. Thus, they import agricultural products from the developing nations and in return exports industrial products. In order to maintain the trade balance, the export shall not lesser with that of imports due to the fact that, if the import is higher than that of export, a country will be in trade deficit and cannot support its development. By looking this fact and having international practice, the government of Ethiopia established ECG scheme to support the exporters to alleviate their financial constraints and to be competent in the international market on one hand and to increase the foreign currency earning of the country to enhance its development on the other hand. While doing this, problems arise in the utilization of the scheme and needs this research to be conducted. The study conducted by collecting primary data from the main stakeholder in the process (financing banks, guarantor/DBE and exporters) through questionnaire and secondary sources of data also used. Lack of immediate response from the guarantor/DBE, misunderstanding among stakeholders about the application of ECG directive and procedure manual, lack of proper handling of the export business, international market problems are mentioned as a problem for the underutilization of the scheme. Accordingly, the guarantor shall give immediate response for the financing banks request, follow up shall be conducted jointly by financing banks and guarantor, stakeholder’s consultation meeting shall be organized to create a common understanding about the directive, is given as recommendation for all possible challenges/problems to be applied by stakeholders.