Foreign Exchange Reform: Necessary Medicine or Premature Exposure?
The National Bank of Ethiopia’s sweeping amendments to the foreign exchange regime mark one of the most consequential policy shifts in recent years. The reform broadens foreign currency retention for exporters and service providers, eases repatriation rules for investors, and grants banks and forex bureaus greater operational flexibility. It is, without question, a decisive move toward a more market-oriented foreign exchange system.
The reform is also closely aligned with Ethiopia’s commitments under its IMF-supported program. The IMF has emphasized exchange rate flexibility, strengthened monetary policy, and structural reforms as central pillars of its Extended Credit Facility arrangement with Ethiopia. In that sense, the direction of policy is neither accidental nor isolated; it is part of a broader stabilization and reform framework.
Yet the essential question remains: is this the right reform at the right time?
Ethiopia’s foreign exchange shortages are not merely the product of regulatory rigidity. They reflect deeper structural imbalances. Export growth has persistently lagged behind import demand. The country’s foreign currency earnings remain concentrated in a limited range of commodities. Industrial diversification is incomplete. Institutional capacity, though improving, continues to face constraints. In short, the chronic FX shortage is rooted in structural production and competitiveness gaps, not only in administrative controls.
Liberalizing the forex regime addresses pricing distortions and allocation inefficiencies. It may improve transparency, enhance investor confidence, and reduce parallel market pressures. But if the real economy does not generate significantly more foreign currency, greater flexibility alone will not eliminate scarcity. Markets cannot allocate what does not exist.
There are also transitional risks. Adjustments to exchange rate mechanisms can expose financial vulnerabilities. Recent reporting suggests that exchange rate realignments have already carried significant financial implications for the central bank and broader financial system. Such strains underline the importance of sequencing and institutional preparedness.
This raises a critical concern: is Ethiopia liberalizing the foreign exchange framework before the productive base is strong enough to sustain it? If exporters cannot rapidly scale up earnings and structural bottlenecks remain unresolved, the reform may ease procedures while leaving underlying imbalances intact. In that case, volatility rather than stability could follow.
That said, postponing reform indefinitely would also carry costs. Maintaining tight controls in the face of persistent shortages risks entrenching distortions, discouraging investment, and widening the gap between official and parallel market rates. The previous system was clearly unsustainable. Reform was inevitable.
The true test, therefore, is not whether forex liberalization is correct in principle—it is—but whether it is accompanied by equally forceful structural transformation. Export competitiveness, industrial productivity, logistics efficiency, agricultural modernization, and institutional strengthening must advance in parallel. Without this deeper economic renewal, foreign exchange reform risks becoming a technical adjustment layered over structural fragility.
Ethiopia stands at a pivotal juncture. If the reform catalyzes confidence, attracts investment, and stimulates export expansion, it could mark the beginning of a more resilient macroeconomic framework. If structural constraints persist unaddressed, however, the policy may expose rather than resolve vulnerabilities.
The reform is necessary. Whether it proves sufficient depends on what follows.
The Swdegef (ሰዉ ደግፍ) book, authored by Eng. Banteyihun Tezazu and launched three months ago, is rapidly transforming from a literary work into a large-scale international socio-economic movement.
During a high-profile gathering at Abrehot Library, university presidents, ministry representatives, and distinguished scholars from across Ethiopia convened to witness the unveiling of the LEAP program—a strategic framework designed to translate the book’s principles into concrete national development efforts.
The movement seeks to generate both intellectual and physical momentum for Ethiopia’s ongoing transformation, urging institutions to move beyond traditional academic boundaries toward a model of rapid, leapfrog development.
At its core, the Swdegef movement is built on four foundational values and five symbolic pillars: Peace, Water, Happiness, Awareness, and Love. As explained during the forum, it redefines human support not as unconditional charity but as a system of reciprocity and mutual exchange. The movement’s leaders emphasized that free aid should be reserved exclusively for children and those physically unable to work, while the rest of society advances through collaborative productivity.
Developed through contributions from rural students to high-level professionals in Canada—and enhanced with Artificial Intelligence tools that synthesized hundreds of data points—the Swdegef book integrates scientific solutions with global experiences.
A major focus of the discussion centered on the “Awareness and Knowledge” pillar. Scholars noted that despite Ethiopia’s abundant natural resources and rich history, the education system has failed to progress in step with global civilization or respond effectively to local realities. This stagnation, they argued, has contributed to poverty and migration. To bridge this gap, the LEAP (Lead, Engage, Act, Prosper) program was introduced as the “new plow” for education.
Under this vision, universities are expected to take the lead in regional economic transformation—encouraging professors and students to engage directly with farmers and traders. Instead of producing theoretical research, institutions would prioritize practical, problem-solving initiatives that enable graduates to become job creators rather than job seekers.
The movement also aspires to harness the Spirit of Adwa, combining modern technology and Artificial Intelligence with the collective labor of 120 million Ethiopians to form a “Hybrid Force.” Through its branch in Toronto, Canada, Swdegef aims to connect Diaspora knowledge and capital with local dedication and energy. This synergy is expected to accelerate the construction of infrastructure—including bridges, roads, and health centers—within months rather than decades, relying on indigenous wealth instead of foreign debt.
University leaders were challenged to transform their institutions from “degree factories” into dynamic centers of community impact, where a student’s graduation is measured by tangible contributions to society.
To ensure sustainable growth, the Swdegef Association plans for 90% of its revenue to be self-generated through its own services and initiatives. Key income streams include the Reciprocity Revolving Fund from affiliated associations, sovereign Diaspora investments, fees from a Digital Academy serving international organizations, value addition to natural resources, and membership contributions.
The event culminated with university presidents signing the LEAP Protocol, marking a historic pledge to transform Ethiopian education into an engine of action—and positioning the nation as a driving force in global prosperity.
In an era marked by global supply chain volatility and mounting pressure for economic self-reliance, Ethiopian Shipping and Logistics (ESL) is positioning itself at the forefront of Ethiopia’s trade transformation. As the nation’s primary maritime gateway and a central pillar of import–export activity, the enterprise is undergoing a far-reaching shift—from a conventional cargo carrier to a fully integrated, internationally competitive logistics provider.
The company recently achieved a major corporate milestone by securing ISO 9001:2015 Quality Management System (QMS) certification, following more than three years of institutional reform, process standardization, and digital modernization. For CEO Abdulber Shemsu, however, the accreditation represents a starting point rather than a destination.
In an exclusive interview with Capital, Abdulber discusses ESL’s transition from second-party logistics (2PL) toward third-party (3PL) and ultimately fourth-party logistics (4PL) services, the expansion of its global footprint through vessel acquisitions and joint ventures, and the strategic choices being made amid Red Sea instability. He also outlines how the enterprise is balancing asset ownership with outsourcing, accelerating digital transformation, and stabilizing Ethiopia’s supply chain during turbulent times. Excerpts:
Capital: What does receiving ISO 9001:2015 certification signify for your organization and customers?
Abdulber Shemsu: Securing ISO 9001:2015 is a landmark achievement for our institution. More importantly, it establishes a structured framework that allows us to continuously and sustainably improve our services. Every process is now standardized and measured against internationally recognized benchmarks.
We view this certification as the baseline for our five-year strategic plan, which aims to position ESL as a world-class logistics provider operating in full alignment with global standards. With end-to-end digitalization and standardized quality management, we are strengthening our credibility as a preferred international partner.
Capital: What did the preparation process entail?
Abdulber: The journey took more than three years. ISO standards require that every task and procedure be evaluated within a formal quality management system. Given the scale of our domestic and international operations, this was a comprehensive undertaking.
We conducted multiple audit phases, implemented corrective measures, restructured departments, and delivered targeted training across our branches. Today, the vast majority of audit findings have been addressed, and dedicated teams are in place to ensure continuous compliance and improvement.
Capital: Are you pursuing additional certifications, particularly in safety and environmental standards?
Abdulber: Absolutely. While QMS certification is foundational, our shipping and port operations require adherence to specialized safety and environmental standards. As we expand into e-commerce and integrated logistics, compliance becomes even more critical.
“This certification is merely the beginning—it represents the baseline. Without it, progress is not possible, and we have no intention of regressing.”
Within the coming year, we plan to secure further safety and environmental certifications to reinforce our operational excellence.
Capital: The institution plans to evolve from 2PL to 3PL and eventually 4PL. What investments support this ambition?
Abdulber: Currently, ESL operates as a 2PL provider. Transitioning to 3PL means managing the entire supply chain—from consolidation and packaging to door-to-door delivery. Ultimately, 4PL would position us as a full supply chain integrator.
We do not intend to rely solely on our own assets. For example, we utilize the Ethio-Djibouti Railway for rail transport rather than investing in redundant infrastructure. In road transport, we combine our own fleet with outsourced trucking services. Similarly, when cargo exceeds our vessel capacity, we collaborate with other carriers.
Our focus is on optimizing capacity and efficiency—not merely expanding asset ownership.
Capital: What progress has been made in digitalization and ERP implementation?
Abdulber: Reducing Ethiopia’s high logistics costs is a national priority. Lower logistics expenses ensure that goods remain affordable and that perishable commodities reach the market before spoilage. As Ethiopia’s principal gateway to global trade, Ethiopian Shipping and Logistics handled more than 40 percent of the country’s imports this year, with the remainder managed by foreign carriers. Managing such scale efficiently requires robust systems, and we have therefore fully integrated an enterprise resource planning (ERP) platform across our operations.
Beyond ERP integration, we are rolling out advanced digital platforms that enable customers to access our services remotely. These include end-to-end traceability, online booking, digital price negotiation, and a mobile application that provides real-time tracking of cargo from origin or warehouse to final destination. The system will be inaugurated shortly and is expected to significantly enhance transparency, operational efficiency, and cost competitiveness across the supply chain.
Capital: What are the core objectives of your five-year strategy?
Abdulber: Shipping remains the cornerstone of our business. Over the next five years, we plan to acquire 16 additional vessels, six of which are scheduled for procurement within the current fiscal year. This expansion is designed to strengthen our fleet capacity, enhance service reliability, and reinforce our competitiveness in international markets.
We also aim to generate more than $1.7 billion in foreign currency by expanding cross-border services beyond the transportation of Ethiopian cargo. For the 2022 Ethiopian fiscal year (2030 G.C.), we are targeting annual revenue of 295 billion Birr, alongside a proportional increase in net profit.
In parallel, we intend to establish joint ventures or strategic shareholdings in at least four countries to broaden our global footprint. A central milestone of our five-year roadmap is completing the transition from a second-party logistics (2PL) provider to a fully integrated third-party logistics (3PL) operator, positioning us to manage supply chains end-to-end and deliver greater value to our customers.
Capital: How has performance been over the past six months?
Abdulber: Our performance has surpassed expectations. In the last six months, we generated 74.4 billion Birr in revenue—a 59 percent increase year-on-year.
We transported nearly 59,000 TEUs in multimodal operations, while vessel utilization rose by over 92 percent. In dry bulk fertilizer shipments, we exceeded our target by transporting 1.2 million metric tons—160 percent of our planned volume—without incurring demurrage charges. 84% of the fertilizer transported inland was moved by truck and 16% by rail.
Capital: How has the Red Sea security crisis affected your operations?
Abdulber: Ethiopia is the only African country operating its own national fleet in the volatile Red Sea corridor. While several countries rely solely on liner services, Ethiopia operates on a Direct Port Cargo (DPC) basis, giving us greater operational flexibility during crises.
When security tensions escalated and major liner operators suspended transit through the Suez Canal, Ethiopian cargo was stranded at multiple transshipment hubs. In response, we mobilized our vessels to provide feeder services, moving goods from nearby ports to Djibouti to prevent prolonged supply disruptions. As stability gradually returned, international liners resumed passage through the canal.
Under normal circumstances, we allocate part of our fleet to cross-trade services for other countries. However, when international slot rates surged sharply—rising, for example, from $5,000 to $7,000 for a 40-foot container—we intervened to protect domestic importers. We diverted vessels from high-yield cross-trade routes and reassigned them to prioritize Ethiopian cargo, ensuring continuity of supply at more manageable costs.
This was a deliberate market-stabilization measure. While the move contributed positively to overall revenue, it reduced our projected foreign currency earnings. We had anticipated $150 million in forex revenue but realized $134 million. The $16 million gap reflects a conscious decision to cushion the national economy rather than pursue maximum short-term gains from international cross-trade operations.
Ethiopia’s sweeping overhaul of its foreign exchange regime has been welcomed with cautious optimism by financial experts, who say the reform marks a decisive step forward but warn that its success will depend on rapid capacity building and clear operational guidance extending beyond the banking sector.
The reform, led by the National Bank of Ethiopia (NBE), forms part of a broader macroeconomic adjustment programme aligned with the International Monetary Fund (IMF)’s Article VIII principles. The measures are designed to liberalise access to foreign currency, strengthen Ethiopia’s integration into global trade, and boost investor confidence.
A Long-Awaited Shift
Eshetu Fantaye, a veteran banker and former president of several commercial banks, described the reform as bold but overdue. He argued that had similar measures been introduced at the outset of Ethiopia’s wider economic reform programme, the country might have been better positioned to secure foreign currency inflows and cushion the depreciation of the birr.
Earlier action, he noted, could also have eased price volatility in essential commodities such as edible oil. Nevertheless, he characterised the current changes as a critical second-generation reform in foreign currency administration — one that touches operations, reserve management, trade flows, and the balance of payments.
“If these changes had been introduced immediately after foreign currency administration was delegated to commercial banks in 1998 under Transfer of NBE’s Foreign Exchange Functions to Commercial Banks Directive No.FXD/07/1998, our economic trajectory might have been very different,” Eshetu said.
Eshetu who is now working as a consultant to local and international institutions, believes the reform signals regulatory continuity and commitment, which could strengthen Ethiopia’s credibility among international partners. However, he stressed that implementation capacity — both within the regulator and commercial banks — will determine its ultimate impact.
One of the most significant changes allows banks to offer forward exchange contracts in addition to spot transactions. This gives importers and exporters greater flexibility to manage currency risk.
Eshetu cautioned, however, that local banks will need time and technical preparation to effectively introduce such instruments, particularly under provisions such as Article 3.1 of the amendment. Articles addressing international lending, forward contracts, and guarantees require sophisticated risk management frameworks that cannot be built overnight.
He urged major banks to collaborate with international partners — through technical assistance or strategic alliances — to accelerate knowledge transfer and system development. Without such preparation, he warned, domestic institutions could lose ground once internationally experienced banks enter the Ethiopian market.
Eshetu also called on the NBE to establish clear implementation timelines to prevent delays. “If left to their own pace, banks may only respond when foreign competitors arrive,” he noted.
Addressing Repatriation Concerns
A central objective of the reform is to restore confidence among foreign investors, particularly regarding the repatriation of dividends and capital.
During a recent parliamentary session, NBE Governor Eyob Tekalegn stated that long-standing repatriation bottlenecks have largely been resolved following a fundamental restructuring of the foreign exchange system in mid-2024.
“International investors have frequently expressed concern about Ethiopia’s currency regime,” he said. “The updated framework has significantly improved confidence.”
Under the revised directive, investors may now remit net profits abroad without prior central bank approval, provided documentation is verified by commercial banks. Eyob added that no investor at a recent meeting with the American Chamber of Commerce in Ethiopia reported difficulties repatriating funds.
Eshetu, however, advised vigilance. He recommended that the NBE compile a comprehensive account of outstanding dividend and repatriation obligations to ensure transparency and smooth settlement.
Private Sector Reaction
Private sector leaders have broadly welcomed the changes. Harsh Kothari, CEO of the Mohan Group and an early investor in the Dire Dawa Free Trade Zone, described the move as exceptionally bold.
“This reform builds confidence,” Kothari said, noting that liberalised currency rules demonstrate Ethiopia’s readiness to compete globally. For foreign investors, he added, the message is clear: capital can move freely and predictably. “We have already been enjoying these freedoms at the Free Trade Zone,” he said.
He added that the sweeping reforms signal Ethiopia’s readiness to engage in global competition. “This decision does two things: it gives confidence, and at the same time, it demonstrates our capacity,” Kothari explained.
For foreign investors, the message is equally powerful. “It tells them that their foreign currency is truly their own and that they can move their capital at any time,” said Kothari, whose family has been doing business in Ethiopia for over a century. “I believe this reform is primarily about building that trust.”
Kothari also expressed confidence in the ability of Ethiopian investors to thrive in this new, open environment, not only within Ethiopia but also on the global stage. “For more than two decades, Ethiopian investors have been competing successfully with foreign direct investment (FDI) here at home. Even without explicit government policy guiding them in the past, many Ethiopian businesses have already ventured outside the country, proving they have the awareness and capability to compete in international markets,” he told Capital.
Daniel Getnet, an FDI and legal consultant, echoed this sentiment, arguing that the directive significantly reduces one of the main concerns raised by international investors — swift profit repatriation.
At the same time, experts have called for transparent criteria governing outward investment approvals. Without clear guidelines, Daniel warned, the NBE’s discretionary authority could create uncertainty.
Key Features of the Reform
The National Bank of Ethiopia has implemented one of the most significant overhauls of the nation’s foreign exchange architecture in decades, adopting core recommendations of the International Monetary Fund’s Article VIII as part of an ongoing macroeconomic reform programme.
In its latest directive amendment, the central bank removed a broad array of longstanding restrictions, granting exporters the right to retain one hundred percent of their proceeds indefinitely and permitting authorised banks to issue internationally recognised cards against foreign currency accounts for outbound retail payments, including e-commerce, provided sufficient balances are held.
Foreign exchange account holders, including those with retention accounts, may now directly debit their accounts to cover education, medical, and travel expenses for spouses and children upon presentation of valid documentation, while the previous minimum balance requirement of one hundred US dollars to open foreign exchange savings accounts for resident and non-resident Ethiopians and foreign nationals of Ethiopian origin has been eliminated.
Profit-making institutions may open current, savings, and time deposit foreign exchange accounts provided the currency originates from grants, gifts, or other non-export sources, and outbound investment by Ethiopian nationals is now permitted subject to case-by-case approval by the National Bank.
Individuals entering Ethiopia may convert foreign currency at authorised bureaus without presenting a customs declaration or deposit the full amount into their foreign currency accounts, while outbound remittances of up to three thousand US dollars are allowed for both account holders and non-account holders supporting family members abroad.
Investors repatriating dividends may remit net profits abroad without seeking National Bank approval upon submission of required documentation verified by commercial banks.
In a parallel move to strengthen the independent foreign exchange bureau network, the central bank has released the full thirty million birr security deposit to forex bureaus operational for one year or more, and half that amount to those operational for at least six months, while raising the cash holding limit from ten to twenty-five percent of capital, with any excess to be sold to commercial banks.
Forex bureaus are now additionally permitted to sell foreign currency cash for domestic payments including visa, immigration, and licence fees upon presentation of payment evidence.
Foreign direct investment enterprises, embassies, international organisations, and non-governmental organisations may open foreign exchange accounts at any authorised bank without an approval letter from the National Bank of Ethiopia.
The directive represents one of the most significant overhauls of the nation’s foreign exchange architecture in decades and is intended to enhance private sector flexibility, deepen financial inclusion, and support durable external sector stability in alignment with international best practice.
Despite broad support for the changes, business leaders caution that macroeconomic reform alone will not guarantee success. A stable and peaceful domestic environment, they stress, is essential to unlock the full benefits of liberalisation.
As Eshetu concluded, “The framework is now stronger. What matters next is implementation, capacity, and maintaining the stability that allows confidence to grow.”
