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Businesses in the country are being hurt by the severely depleting foreign currency reserve observed lately.
The problem has surfaced for long, but small traders have been able to stay afloat because of the availability of dollars on the black market. But this now seems to be a luxury as no one can find any amounts needed even on the black market.
Some are considering closing their businesses as they cannot pay their suppliers due to the shortage. Some even downsized their production capacity by over a half and produce just enough not to get out of the market totally.
With the foreign exchange shortage, banks are under strict instructions from the National bank of Ethiopia (NBE) the regulatory of financial institutions to give priority to essential services such as food, medicine and fuel imports in their foreign exchange allocation.
The order has locked out traders who now have to scramble for the little dollar inflows on the black market. Pundits claim that this acutely high demand will shoot up the rate on the black market in the next couple of weeks if not days.
If the rate on the black market rises sharply then it will heavily affect the price of consumer goods leading to a price hike. As the traders bought the dollar at a higher price they will increase price on the products they import and the consumer will ultimately pay the difference.
The black market hence is being stoked up by the severe dollar shortages, with the unofficial exchange rate being pushed up by the day, as desperate traders including big enterprises seeking the hard currency the government is unable to provide.
What’s worse is that private banks used to sell a limited amount of hard currency to individuals that can provide a valid justification for travelling abroad for medical treatment or studying abroad. Nowadays you can’t get that hard currency not for leisure but even for your life.
This is a nightmare. Imagine that you are sick and you should travel abroad for treatment and you don’t have relatives who live abroad; given that you can afford it, of course. You can’t get a dime from private banks immediately; your request will be processed and you will need to wait for several weeks. By the time your request is approved you might not need it anymore…, maybe you are dead.
Some indicated that the situation is actually worse than what is being said and felt. Those in the black market witnessed a near-total unavailability of US dollars on Wednesday this week.
Goods have run out of stock from factories and these plants cannot find dollars in the commercial banks to import more.
The move by the central bank to take over the management of all foreign exchanges by commercial banks is to closely follow the shortage of hard currency that is inhibiting the flow of import activities. Importers have been forced to wait for extended periods for approval of their foreign currency application leading to allegations of abuse by bank officials.
At present the government is undertaking mega developmental projects such as power generation and sugar production ventures that consume huge amount of hard currency for importing construction materials. This project has severely hampered the flow of hard currency.
Some say the other factors for the hard currency shortage is the decrease in export volume seen in the past year, combined with the low price of coffee on the international market.
Currently, government projects and export oriented businesses get priority to obtain foreign currency permit. Other foreign currency applications have been waiting for more than six months.
After these government mega projects are completed Ethiopia will be able to export large amounts of power across East Africa in the coming years, starting with neighboring countries Kenya and Sudan.
Ethiopia wants to increase its electricity exports – mainly generated from hydropower – as a reliable source of precious hard currency. It also plans to export sugar to different countries thus becoming one of the major sugar exporters in the world.
That would relive the shortage that hampers local industries now and then.
A critical foreign currency shortage in 2008 forced the country to devalue the ‘birr’ in 2009 by 10 percent against the US dollar. This may happen again now.
The shortage will also push up inflation and will have adverse effect on the livelihood of many citizens.
I personally fear that there will be a return of last year’s sharp price increases and shortages of commodities, a situation that forces the government to control and cap prices in order to ease inflation.