Government organizes a committee to assess feasible ways to unify the normal exchange rate market with the ever so rising parallel market exchanges.
As sources inform Capital, a committee comprising of different stakeholders from various ministries, financial advisors and officials from the National Bank of Ethiopia, has been established in recent weeks to tackle the matter. The committee is expected to assess ways on how the government could equalize both the normal and parallel exchange rates to increase government’s foreign exchange gain, which is currently being munched by the black market.
To properly manage the unification and avoid a shock to the system, conducting a series of studies including sifting through the lessons learnt from other countries, is said to be integral.
As the government has alarmed over the years, Ethiopia’s economy has witnessed a shortage in foreign currency. Due to the increased demand for foreign currencies, the dollar exchange rate at the parallel market has in recent episodes skyrocketed making the official and black markets to drift exponentially apart.
It is widely thought that the surging inflation coupled with shortage of hard currency in Ethiopia are driving up the price of the US dollar on the black market. In some parts of the city where black market trading takes place, during the week, one US Dollar was selling between 102 to 110 birr which is more than double in comparison to the normal exchange rate which is less than 54 birr.
The foreign exchange provided by the banks is decreasing significantly. In response to excess demand for foreign exchange in the official market, parallel markets for foreign exchange have gained traction. However, the emergence and existence of active parallel foreign exchange market has created several complications to policy makers in their attempt to regulate the external balance.
According to IMF, Ethiopia has broadly pursued a policy of depreciating the nominal rate by 6 percent a year. Likewise, there are indications that the price level in the economy largely reflects the parallel market rate. To combat this, the central bank has undertaken a medium-term plan of economic reforms and macroeconomic policy measures to minimize the parallel foreign exchange market. But in all of this, creating a unified exchange rate market has been daunting.
“There is no doubt that over the coming six to 12 month we have to find steps towards the unification of the exchange rate. Remittance is also highly dropping because of the black market rate which is very attractive,” said one of the advisors working with the Ministry of Finance to Capital in an insightful interview, adding, “Through unification, we need to get back to a situation where we have only one price of foreign exchange as opposed to two markets which are night and day.”
According to a simplistic explanation by experts, unification means bringing these two markets together to create a situation where either to have a floating exchange rate purely market driven or something similar that actually has a clear path towards having one single exchange rate.
“This process on one hand can be very tricky and on the other very easy to implement depending how best it is approached. Because if you’re not careful this unification can be very inflationary,” insisted the economy policy expert, adding, “To have a stable unification, an analysis of the demand side versus the spending side ought to be keenly looked into. Furthermore, the government on its end will be required to tighten the belt because otherwise this process will not be successful.”
The government expects tangible results following the unification of the two markets, in the primary areas of inflation and forex shortage.
Over the past ten years, the Ethiopian birr has depreciated significantly against the U.S. dollar, primarily through a series of controlled steps. Over the past years, everything has been changing so fast and exchange rates are rapidly fluctuating due to the political uncertainty in the country. The conflict in Northern Ethiopia and the instability in most parts of the country are among the factors that are said to have contributed to the skyrocketing exchange rate of foreign currency.

Innovation, tech and development plus a thriving manufacturing sector pinned integral to success

The Ethiopia 2050 Initiative, an initiative which comprises high profile experts from different fields stemming from local and international expertise, highlights that innovation, technology and development in the IT and manufacturing sector is vital to unlocking the social-economic progress of the country and in assuring the formation of satellite cities.
During a roundtable discussion held at the Ministry of Mines hall on Thursday January 5, Takele Uma, Minister of Mines, underlined that this kind of initiative plugs in a distinctive contribution for the country to follow a right and desired growth trajectory.
“If we have a clear cut understanding of the upcoming growth, attaining the much needed development will be easier. Ethiopia has been engaged on agricultural development policy for the past several years. We have the same plot of land, yet the sector productivity has spiraled. To modernize the agriculture sector, the manufacturing industry should also be considered. Similarly, the digital development should follow suit in alignment,” the Mines Minister stated.

Takele further pointed out that Ethiopia needs to curve out solidified partnerships and gain collaborative support; in order to knit out a proper development path.
The Ethiopia2050 Conference was first held in December 2019 and during the two day session, several papers were presented that showed possible challenges and opportunities that the country may experience in the coming three decades.
In October 2020, the professional studies and papers presented at the conference were analyzed and compiled as a ‘Blue Ribbon Panel (BRP)’ report presented to the government for possible input in government’s upcoming policy direction.
The mandate of the Blue Ribbon Panel was to write a comprehensive consensus report that outlines credible, relevant, and pragmatic ideas and practical strategies to address the ‘10 Grand Challenges and Opportunities’ identified by the Ethiopia 2050 Initiative.
Tesfaye Workineh, Managing Director and owner of United Consulting Engineering PLC and Co-Chair of Ethiopia2050 Initiative, said that by 2050 Ethiopia’s population is projected to double to 200 million and before that transpires, government should tailor a strategic plan to be reviewed every decade in order to tackle possible challenges.
“The document focused on ten pillars that the country should pay close attention to in order to improve and prepare the country in relation to population growth and global situations,” he said.
“We have seen some projections of socio economic pillars including environmental protection, power, water and health that need to be attained in the coming years as per the 2050 initiative. Technology is part of it and it is crucial to interlink other grand pillars that Ethiopia has in order to align them with the population growth,” Tesfaye explained.
The kind of technology that Ethiopia requires to develop a digital economy and a digital manufacturing landscape were the areas extensively discussed during the latest roundtable which gathered professionals from Ethiopia and abroad including those who attended virtually through webinar, in addition to the policy makers present at the meeting.
Tesfaye said that some initiatives and innovations have already commenced courtesy of the private sector in addition to the government efforts in the digital sector development, “If we can integrated development pillars with digitalization, the country will gain a foothold on a proper development direction.”
Pilot studies have also been undertaken by the initiative with regards to technology expansion and interlinking educational facilities which the Ministry of Innovation and Technology is working at length to achieve the goal.
“The main concept of the roundtable is to develop policy recommendations that shall interconnect technology with practical works. We will also deliver the outcome for policy makers,” explained Tesfaye.
“In the upcoming sessions other pillars stated on the BRP including health, education and agriculture, which have their own taskforces formed by the initiative, will be discussed in the near future,” the Co-chair said, whilst citing that in the recent past, the global pandemic and internal conflict has affected the activity of the initiative, to a certain degree.
Every pillar has a taskforce with seven members each.
Tesfaye said that the government is using the recommendations on its development plan which was recently ratified and made effective.
The BRP rests upon a collective vision that is part of the broader Ethiopia 2050 Initiative and focuses on the actions that policymakers can take, with broad support of the public. Their insights were generated after extensive and careful vetting of the transformative new ideas presented at an international conference held for two days from December 19, 2019 with over 450 participants from ten countries.
Rapid urbanization, water-food-health-energy issues, job creation, institutional and civic development, gender equality are the major areas that are included in the document with related topics.
It recommended proactive strategies to manage growth in the rural areas and aid the urbanization process in the cities. It discloses that the establishment of megapolis will create city clusters vital for organized development.
Ethiopia2050 Initiative has 400 volunteer members and of that 70 percent are from the diaspora.