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Standing in one of the small sized shops around
Mexico, which on a daily basis haggle currencies,
Lakew Alene, a resident of Yeka District, was
hilariously counting a 400 dollars exchange in local
currency last week on Thursday. He was pleased with
what the parallel market a.k.a black market had to
offer him in Birr in exchange for the dollar his
sister, Meskerem Alene, sent him from the US through
a friend of hers who came to Ethiopia for a visit.
“I did not expect to get this much,” said Lakew,
pleasantly surprised. “Close to four months ago, I
only got 3,800Br in return for the same amount of
dollars.”
Last three weeks saw a sizeable depreciation of the
Birr against the dollar as well as other currencies
like the Euro and Pound sterling. The fall of the
value of the Birr is witnessed even more in the
parallel market where a dollar is bought for 10.61Br
while the Euro and Pound went for 16.1Br and 20.9Br
respectively.
For people like Lakew, who depend on remittances
they collect from relatives abroad, it is an
auspicious moment as it is a boost to their income
in terms of the local currency, eventually enabling
them acquire more basket of goods.
Nonetheless, not all are buoyant about it. In fact,
authorities at the government offices are rather
enraged with the actors of the parallel market who
supposedly are distorting the foreign exchange
market.
Strangely to the actors, the Addis Abeba Police
Commisssion had taken a bold move last week on
Thursday, March 13, arresting 35 alleged players of
the under cover market. In a random inspection made
in 26 shops in Kirkos and Addis Ketema Districts,
the commission has also seized undisclosed amounts
of foreign currencies.
“The perpetrators will face a tough penalty,”
Tesfaye Meressa, deputy commissioner of the city
police commission, told reporters at his office on
March 13.
Not only was the shockwave sent to the parallel
market players. Cement importers, who were dubbed as
their trading counterparts by the Ministry of Trade
and Industry (MoTI), also have felt the pain late
last week following the Ministry’s decision to
revoke the permits it had given to these businessmen
to import cement free of taxes and duties.
The government granted permits to cement importers
with the Franco Valuta system close to a year ago in
a bid to stabilize the shortage that had constrained
the construction sector. Until the end of February,
965,000tns of cement has been imported which has
contributed in making the cement market become
stable. The MoTI has, however, repealed the permit
of these businessmen except those whose shipments
have been certified by the Ethiopian shipping lines
until March 14.
Critics, however, consider the move outlandish in
that it does not bring a lasting solution to the
problem.
“I do not believe that the black market is primarily
responsible for this,” says an economics lecturer at
the Addis Abeba University. “The official exchange
rates also have dropped to historical lows.”
The average exchange rate of the Birr against the
dollar in the inter-bank foreign exchange market has
reached 9.4Br while the pound sterling and the Euro
were tagged 19.4Br and 14.9Br respectively.
According to the fourth quarterly bulletin issued by
the National Bank of Ethiopia (NBE), last year in
March 2007, the official exchange rate for the
dollar was 8.8Br while the parallel market rate was
8.9Br. Compared to last year, the Birr has
depreciated by 0.6Br and a stunning 1.7Br in the
inter-bank transaction and what is considered an
underdog currency market respectively.
The depreciation becomes even more visible if one
compares the change this year from March last year
and the change in March last year from the previous
March.
In March 2006, the inter-bank and parallel exchange
rates were 8.6Br and 9.1Br respectively. While the
inter-bank rate slightly dropped to 8.8Br, the
parallel rate had rather picked in March 2007 to
8.9Br.
The scenario this month is completely different
though. Not only did the exchange rate drop, but it
also nose dived to unprecedented levels especially
in the parallel market.
Economists associate the appreciation of the dollar
against Birr (at a time it is depreciating against
the Euro and Pound Sterling) with the growth of
demand for the dollar by local businessmen and hike
in international prices.
“The depreciation of the Birr against the dollar,
compounded with the increase in demand for imported
goods, has so much to do with the burst in
international prices,” Haile Kibret, Macro Division
head at the Ethiopian Economic Association, told
Fortune.
Indeed the prices of Ethiopia’s major import items
that slice a significant portion of its budget have
picked tremendously. Cases in point are fertilizer
and petroleum. While a tonne of fertilizer is
currently tagged more than 870 dollars per tonne up
from close to 460 dollars last year, a barrel of oil
has recently reached 103 dollars.
This pushes up the foreign exchange the country
spends to finance imports, thereby worsening its
trade balance with its major trade partners of the
west.
According to a statistics from the NBE, in the
fourth quarter of the 2006/2007 budget year, the
merchandise trade deficit stood at 1.09 billion,
exhibiting a 46.6 million increase over the
preceding quarter.
Financing imports is claimed to have put commercial
banks that are managing Letters of Credit (LC) under
pressure forcing them to check the pace with which
they are opening LCs.
“The bank that I work with is not approving my
requests as swiftly as it used to,” says a machinery
importer, who wished to remain anonymous. “There is
certainly a difference with the way it is handling
such requests.”
The banking sector in Ethiopia, which on average
earns 80pc of its profit from foreign exchange
dealings, seems to be wary of the problem. Albeit it
is squeezing itself to satisfy the requests of its
clients, there is so much care involved of late.
For instance, executives of the state owned giant
Commercial Bank of Ethiopia (CBE), which has opened
LCs 140pc higher than its target in the second
quarter of 2007/2008, had met to discuss on the
increasing gap between the inflow and out flow of
foreign currency to the bank close to one month ago.
“We assessed our commitment so that we will not fail
and devastate our image before our foreign
correspondent banks,” a senior executive of the CBE
told Fortune.
According to the executive, it is the first time for
the bank to excel its LC target with this
percentage.
Elias Loha, manager of Reserve Management and
Foreign Exchange market Department, told Fortune
that the Bank opened too much LCs claiming that it
has government commitments.
The 66 year old Bank, which registered an un-audited
716 million Br in gross profit from its operations
in the first two quarters of this fiscal year, has
commitments in the construction as well as transport
sectors among others.
In addition to the increase foreign exchange outflow
to pay for imports, the depreciation of the Birr is
also attributed to the scarcity of inflows due to
low export.
According to Leykun Berhanu, president of Awash
Bank, the revenue fetched by Ethiopia’s major export
commodities like coffee and oil seeds in the second
quarter of the fiscal year is small compared to the
third and fourth quarters.
For instance, in the second quarter of 2006/2007,
Ethiopia generated 68.2 million dollars and 28.7
million dollars from the export of coffee and oil
seeds respectively. However, this figure jumped to
110.7 million dollars and 78.7 million dollars the
following quarter. The income from coffee was even
higher (154.7 million dollars) in the fourth quarter
of the same fiscal year.
This year as well, there are expectations among
close observers that the revenue in the third and
fourth quarter would also grow eventually curbing
the foreign currency intricacy that the country is
facing.
Haile nonetheless believes that the government
should focus on boosting exports as well as
attracting foreign Direct Investment (FDI) if it
wants to put off such challenges to the economy
sustainably.
Lakew, who seems to be in high spirits with the deal
he stroke at the parallel market, does not however
disagree with the sustainable measures proposed.
“Even if the rate is to my advantage this time, I
cannot be sure what tomorrow brings,” he told
Fortune. “There needs to be a steady rate so
that I will not come next time with fear that the
value of my foreign currency may drop.”
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