Experts in the financial sector claim the opening up of franco-valuta has reduce remittance whilst inflating the parallel market; while the National Bank of Ethiopia (NBE) dismisses the claim on grounds that it is baseless.
Quite recently, the Ministry of Finance (MoF) had revised and eased the franco-valuta direction for the import of basic consumer goods, wheat, rice, sugar, edible oils, and instant baby milk.
It can be recalled that from the first direction introduced about a year ago, the government allowed interested importers who have foreign currency abroad to import basic goods at a minimum threshold of USD 250,000 in addition to a verification of the source of foreign currency with NBE.
However, on its latest amendment issued on April 8, MoF opened the amount and the source verification.
As experts explain, ever since the new amendment was introduced, the rate on the parallel market has been expanding against the legal market. Moreover, the financial experts have further explained that the flow of hard currency to banks as remittance has been affected because of the new type of franco-valuta condition.
A bank president that Capital spoke to said that it is obvious to spot reduction of remittance at banks, “when the government allowed the import through franco-valuta with smaller amounts of money against its rule in the past, such reduction have risen.”
However, the regulatory body dismisses the argument by stating that it is a baseless argument.
Fikadu Digafe, Vice Governor and Chief Economist at NBE, explains that it is very early to conclude as such.
“It is difficult to conclude by picking a single factor, while we are evaluating the issue in detail, but such kind of macro issues cannot be evaluated swiftly. Overall statistics does not show that the franco-valuta is affecting the foreign currency in flow,” he elaborated.
“The parallel market has not increased because of the franco valuta. Regarding remitance our document shows that it is rising rather than reducing,” he added.
Fikadu explained that the increment rate behavior in the parallel market is related with external factors.
“The war in Ukraine and global price hike tendency has increased the demand of the parallel market, while there is not ample supply on the system,” he told Capital.
The Chief Economist explicitly explained that in the case of Ethiopia, more than 90 percent of the foreign currency obtained in the parallel market is channeled for import thus when the cost of import rises because of global price hike, the demand is also increased, “this is the major reason for the increment on the rate at the parallel market.”
He added that incoming travelers insist to channel their cash on the legal system that has also reduced the supply on the illegal market.
He further reminded that at least 35 percent of the Ethiopian import is covered by the underground market.
Fikadu said that the regulatory body is waiting for the complied document with regards to the import of commodity through the franco-valuta from Customs Commission, “the informal information we are getting so far indicated that it has a positive contribution for the market in terms of price and accessibility of goods.”
Fikadu concluded that if the franco-valuta is operated properly it shall directly contribute to the economy since it is a resource inflow in kind.
Experts on the other hand argued that when the amount of value is reduced it would be difficult to control the scheme.
Recently, in a letter issued on Friday April 8 and sent to Customs Commission, shows that MoF has replaced the directive issued about a year ago.
Ahmed Shide, Minister of Finance, told Capital that the government has decided to lift the minimum requirement for the import of the basic goods that any one who lives abroad including the diaspora can import the stated commodities with any volume and value.
Ahmed added that the new decision will be applicable for at least six months, “we will review based on the circumstances but now we can say that it can be applied for the coming six months.”
Franco-valuta privileges spurs scrutiny
5 firms sign to use Tele’s modular data center
Ethio telecom signs agreement with five institutions to lease its newly launched modular data center. Previously, Amhara bank inked agreements with the telecommunications firm to use the center.
On Friday May 20, 2022 the company signed the agreement with Zemen Bank, Rays Micro Finance, ZamZam Bank, Hijira Bank and Websprix to enable these institutions gain access to the data center.
The modular data center is said to be of high capacity with world class standards having more than five direction fiber connectivity with an automatic switch over functionality to ensure service reliability. Moreover, it is equipped with extensive security and compliance system controls with 99.99% uptime track recorded availability.
In related issues on Wednesday May18, 2022 Ethio telecom and Information Network Security Administration (INSA) launched a monthly water service bill payment via telebirr through Derash integrated payment platform for water and sewerage services providing institutions.
Based on the agreement signed, telebirr subscribers residing in Arba Minch, Harari, Bahir Dar, Finote Selam, Injibara, Dessie and Kombolcha towns can settle their water and sewerage service payments via telebirr with the enabled system integration by Derash, and it will also enhance water and sewerage service providing institutions to collect their customers’ monthly bill efficiently.
Upcoming proclamation to unlock foreign digital finance
Foreign mobile money operators or digital financial service givers will be allowed to operate in Ethiopia even before the revising of banking proclamation is done as digital payment proclamation is under preparation for the first time.
The Digital Payment Proclamation bill will allow foreign investors to offer mobile money services, boosting firms such as Safaricom- Ethiopia that are seeking to start operations in the country this year.
“Revising the banking proclamation and allowing mobile money operators is different,” said Yinager Dessie, governor of the National Bank.
A he explained the mobile money operators will be liaising with the local banks, as opposed to working independently, which is different from bring in foreign banks.
A firm that stands to benefit from this proclamation is Safaricom Ethiopia, with its mobile money platform M-Pesa.
“When the proposed law is approved, including M-Pesa and other foreign Fintech firms will be allowed to operate,” said Yinager adding that Safaricom Ethiopia will be able to get a new license to launch its M-Pesa services.
According to the current banking proclamations, Digital Financial Service institutions including payments, remittances and insurance accessed and delivered through digital channels with foreign investors cannot be able to fully or partly own businesses that provide these services in Ethiopia.
On related news, as part of increasing digital financial inclusion, the national Bank has given a green light to Ethio telecom’s telebirr so as to start giving micro credit and saving services.
“We are working to strength the digital economy in order to enable citizens to have an easy system whilst promoting financial inclusion,” said Yinager indicating the central bank’s go ahead decision to the new services.
Ethio telecom has been requesting for a license to the National Bank to start giving loans and saving services through telebirr as part of expanding its digital financial service, and that seems to have borne fruit.
As Yinager explained, this will allow a huge portion of citizens to be beneficial in the financial sector.
Similarly, Ethiopia plans to open up its banking industry to foreign competition as soon as parliament passes policies permitting it.
The committee has already begun working on reforming Ethiopia’s old financial services code. The first draft of the new code will be ready this December and will stipulate the modalities for foreign banks to operate in Ethiopia.
A new financial services code in Ethiopia is expected to allow foreign banks to invest in Ethiopia as the existing proclamation does not allow foreign banks to come and operate in Ethiopia.
“Opening up the sector will benefit both the economy and local banks more importantly it will increase investment,” underlined Yinager indicating that the country needs more investment.
“The opening up will be done in a win-win situation, without affecting local banks and will highly benefit the economy, local banks and also other businesses,” said Yinager as he highlighted that many African banks are already showing interest to come and invest in Ethiopia.
Loans weigh hefty for hoteliers
A dozen of high standard hoteliers in Addis Ababa are working to sell their hotels as a result of not being able to make their loan ends meet.
Despite the Addis Ababa Hotel Owner’s Trade Sectorial Association requesting the national bank for a policy decision for commercial banks to extend their loan repayment period, the plea as it stands seems to be left up in the air.
As Aster Solomon, President of the association explains, only 3 months remain as per the repayment period, and many hotel owners are on their way to selling their hotels as a result of difficulties of repayment. On the flip side, banks are kick starting the process of auctioning off unpaid hotels.
The severe impacts of COVID-19 brought the hospitality industry to a standstill. As a result, the government decided to provide loans for the hotel and tourism sector. Accordingly, the government has been able to lend 3.3 billion birr for six months from June 2020, despite the hotels request of 6.6 billion birr for one year.
“The government’s move saved the sector at the time, however, the threat to the hotel sector remains unresolved unless the loan term is extended,” said Aster explaining that hotels are still in danger if their repayment period is not extended as they already have loans for construction and other purposes other than the Pandemic Rehabilitation Loans.
“Even if lenders understand the problem of hotels and want to extend the repayment period, they will not be able to do so without a directive from the National Bank of Ethiopia,” Aster explained.
“Commercial banks have understood the difficult situation that the hotel and tourism sector has found itself in. Likewise, the Addis Ababa City Tourism Bureau is also working to find a way to support the association,” Aster expounded on the matter.
As the hotel industry, both here and globally continue to recover from the hard hitting pandemic, most if not all hotel industries are operating in nil profits with their revenues dwindling drastically. The hotels are not making profits at this difficult time and are thus not able to repay their loans which could increase the non-performing loan of banks which could result to the closure of hotels.
Operators in the sector recommended that it would be commendable if the banks can relieve them of loan repayment, reduce interest, and the government to provide assistance to the hospitality industry with failure to do so proving catastrophic for the industry.
