Car prices be 54% cheaper if dealers acquired 100% of the forex

Ethiopia’s economic landscape has been facing a multitude of challenges in recent years, and one of the key issues highlighted in the latest edition of The Blue Book, an annual economic publication by First Consult, is the prevalence and impact of parallel market rates. The report sheds light on how these rates have affected businesses and consumers, further complicating an already uncertain economic environment.

The Ethiopian economy, in its quest for transformation and growth, has experienced various macroeconomic trends and shocks. However, the report emphasizes the importance of understanding how these developments are perceived and experienced by economic agents on the ground, such as businesses and consumers. This year’s edition of The Blue Book focuses on the microeconomy, specifically exploring the challenges faced by 312 micro and small businesses in Addis Ababa, Adama, Hawassa, and Dire Dawa.

One of the significant findings of the report is the impact of parallel market rates on businesses operating in Ethiopia. Parallel market rates refer to the exchange rates for foreign currencies, such as the U.S. dollar, that are determined outside of the official banking system. These rates often deviate significantly from the official exchange rate set by the government, creating a complex economic environment.

The report reveals that businesses heavily reliant on imported inputs have been particularly affected by the scarcity and volatility of foreign currencies in the parallel market. The unavailability and supply challenges for key imported inputs have hindered their operations and performance, leading to cost increases and disruptions in production. The magnitude of these cost increases has been a significant concern for many businesses, forcing them to adopt coping strategies to navigate through these challenges.

Furthermore, the report highlights the impact of parallel market rates on inflationary pressures. The rising costs of inputs due to inflation have compelled businesses to make pricing adjustments, which, in turn, have affected consumer demand. This vicious cycle of inflation and pricing adjustments has had implications for the quality and quantity of products and services offered by businesses.

One of the key findings of the report is the adverse effect of parallel market rates on the automotive industry. Car dealers heavily rely on imported vehicles and parts, which require foreign currencies for procurement. However, due to the scarcity and volatility of foreign exchange in the parallel market, car dealers have been forced to acquire the necessary foreign currencies at exorbitant rates.

The report reveals that if car dealers had obtained 100% of the required foreign exchange through official channels, the domestic prices of cars could have been significantly lower. In fact, the prices could have been 54% cheaper, offering a much-needed relief to consumers who aspire to own a vehicle.

The impact of parallel market rates on the automotive industry extends beyond inflated prices. The scarcity of foreign exchange has resulted in delays in the importation of vehicles and parts, leading to supply chain disruptions and a limited selection of vehicles available in the market. This has further fueled the price surge, as the demand outweighs the supply.

Car dealers and importers have been grappling with the challenges posed by parallel market rates, hindering their ability to offer affordable options to consumers. The report underscores the urgent need for policymakers and stakeholders to address the issue of foreign exchange availability and stability. Measures should be taken to enhance foreign exchange reserves and ensure a more efficient and accessible system for acquiring foreign currencies through official channels.

The Blue Book also explores into the issue of access to finance and liquidity in the context of parallel market rates. Businesses, especially micro, small, and medium enterprises (MSMEs), have faced challenges in securing financing from banks and microfinance institutions. The scarcity of foreign currencies in the parallel market has created difficulties in accessing loans and credit, hindering business growth and expansion.

The findings of The Blue Book’s report on parallel market rates underscore the need for policymakers and stakeholders to address the underlying causes and consequences of these rates. It calls for measures to enhance foreign exchange reserves, improve access to finance for businesses, and develop strategies to mitigate inflationary pressures.

The Ethiopian government, in collaboration with development partners, businesses, and individuals, should work towards stabilizing the exchange rate and ensuring a conducive business environment. Efforts to promote financial inclusion, enhance liquidity, and support the growth of MSMEs will be crucial in navigating the challenges posed by parallel market rates.

As Ethiopia continues its economic journey, the insights provided in The Blue Book serve as a valuable resource for understanding the complexities of the microeconomy and devising effective strategies to cope with change and uncertainty.

A directive that requires excise tax collectors to stamp their merchandise is drafted by the Ministry of Finance (MoF). Additionally, the directive enforces that importers or producers create a system that interfaces with the tax office.

The excise tax proclamation 1186/2020 is the basis for its drafting, according to the directive that was released for comment.

Article 29, sub-article 1A of the 2020 proclamation stated that the MoF may, by directive, specify the excisable goods to which excise stamps shall be affixed.

According to the draft directive, spirits, tobacco, bottled water, alcoholic and non-alcoholic beers, cigarettes, and cigarillos must all have the excise stamp applied.

It added that the ministry shall include other goods.

According to experts, the ministry made the decision to issue the directive because it believed that all relevant importers and manufacturers were not correctly complying with tax collection requirements. They informed Capital that “it is also part of the implementation of expanding the tax base.”

The excise stamp shall be a paper stamp, digital stamp, or any mark that the Minister may approve for affixation or printing on excisable goods.

The draft directive stated that the Tax Authority shall specify the type, content, and the manner of affixing excise stamps.

According to the draft law, a manufacturer or importer of excisable goods shall apply to the Tax Authority for excise stamps in the prescribed form. “An application for excise stamps in accordance with sub-article 1 of this Article shall be submitted to the Tax Authority at least sixty days before the manufacture or importation of the excisable goods.”

The directive stated that the ministry shall appoint a company to carry out the printing and supply of excise stamps, to develop and install the system, and to install any other related systems.

It added that the excise stamps shall be affixed to manufactured goods at the production facility immediately after packaging and at the customs post or at a place determined by the Tax Authority within five days of the clearance for importation of the goods.

It added that the Tax Authority may allow excise stamps on imported excisable goods to be affixed at the production facility in the exporting country in accordance with such conditions as the Tax Authority may specify.

According to the directive, a manufacturer or importer of excisable goods shall facilitate the installation of the system, like excise stamps authentication and validation equipment, devices for identification and association of each package with an individual excise stamp, production accounting equipment, and devices for the control, registration, recording, and transmission of data on quantities of excisable goods which have been stamped to the Tax Authority.

“All packages of duty-free or export excisable goods specified in the proclamation shall bear distinct markings to enable the goods to be trackable and traceable,” the directive added for commodities that have duty-free incentives.

Article 39, sub-article 6 of the proclamation stated that any person who contravenes Article 29 of this Proclamation, which provides about excise stamps, commits an offense and is liable if convicted to imprisonment for a term of 3 to 5 years and a fine of 50,000 to 100,000.

By Muluken Yewondwossen

Over the next five years, debt service will overtake financial spending on essential social sectors in Africa.

Africa is currently facing a financial crisis as a result of the continent’s foreign debt growing by nearly four times during the previous 20 years.

The African Forum and Network on Debt and Development’s (AFRODAD) policy analyst and advocacy officer for sovereign debt management, Shem Joshua, stated that if there is no way out, the continent’s debt service payments will only increase over the next five years.

According to the UNCTAD analysis, he said, there would be more money spent on debt servicing between 2025 and 2030 than on funding initiatives to improve health, education, and other social sectors.

At last week’s AFRODAD Media Initiative, he stated, “It has an impact when it compares with some of the development agenda that African economic considers as the expenditure for debt repayment increases and education expenditure reduces.”

The question of whether countries are collecting money to pay off debt or to expand their economies is raised by the growing amount of debt to GDP.

He displayed the debt position of a few African nations, saying that between 2019 and 2023, the average debt to GDP ratios for Egypt, Sudan, Tunisia, and Morocco were 86, 198, 83, and 70%, respectively, and above 100% for the Democratic Republic of the Congo, Zambia, and Mozambique.

Joshua claims that of Africa’s USD 238 billion (dollars) in debt at the beginning of the 2000s, less than one-fifth was owing to private creditors.

Africa has a total debt of USD 1.13 trillion (trillion dollars) as of 2024, a 375 percent rise from 2000 to 2024. Private creditors account for the majority of Africa’s debt. He went on to say, “Private creditors have become important financing sources for African countries in recent years as governments are able to circumvent loan conditions associated with debt owed to bilateral and multilateral creditors.”

The low interest rates that were prevalent at the time, which encouraged African countries to borrow, are reflected in the rapid increase in debt held by African governments between 2012 and 2019.

Subsequently, governments have to drastically reduce their spending, frequently despite declining tax collections.

Between 2000 and 2023, there was a significant increase in the continent’s gross government debt relative to general government revenue.

This disparity has made it difficult for governments to determine how best to use revenue to pay down debt while also allowing for economic development.

He highlighted the financial bottleneck the continent faces by saying, “If eight or nine dollars of every ten dollars we collect in revenue go toward debt repayment, then can we develop our economy by the remaining one or two dollars?”

“Public borrowing is vital for bridging the financing gap in African economies, given that on average, domestic revenue is about 18 percent of GDP in Africa. However, for low-income countries, the average is about 12 percent of GDP.

The average domestic tax collection rate in African nations is between 10 and 15 percent, while 60–75 percent of the continent’s economy now operates in the informal sector.

“We do not support raising taxes on citizens since very few people pay taxes, regardless of where we are in Africa. Since the majority of our economies are in the informal sector, we are looking to increase the tax base,” he continued.

“What are some tools that the government is putting in place to make sure that we can service our development agenda without depending on developed economies?” he asks, emphasizing potential solutions to be considered when the development initiatives are completed.

“There’s a problem when we cut back on health or education spending while raising the debt service,” he continued.

He brought up a UNCTAD analysis that predicted that between 2025 and 2030, more than half of Africa’s economy will be used to provide for debt service compared to GDP, surpassing fundamental needs in the areas of health, education, and other social sectors.

The expert asserted, “Africa is in a debt crisis, and the worst scenario is that the developed economies will have to bring the solution to the continent.”

He expressed disapproval of the fact that the majority of debt restructuring plans include conditions that might negatively impact a nation’s economic stability.

Low-income nations were able to temporarily suspend part of their debt payments under the COVID-19 Debt Service Suspension Initiative (DSSI), but not all creditors were required to comply.

As a result, the G20 Common Framework was established to restructure the debt of these countries.

Only two nations and four countries, Ethiopia, Zambia, Ghana, and Chad, were involved in the debt restructuring. Although Zambia and Chad were able to come to an agreement, it took more than two years to see any tangible results due to the conditions, some of which would require austerity measures from the creditors.