It was at the Start of the Abyssinian New Year in September 2012, that Ethiopia’s manufacturing industry first felt the ripples of foreign exchange deficiency as the sector barely managed to claw back a few foreign denominations, from a local bank, to import spare parts.
The forex deadlock had, in fact, began at the start of the 2012-13 financial year, three months earlier, as the government of Ethiopia announced the yawning foreign currency shortage, and reinforced the 2009 move to depreciate the value of the Ethiopian Birr by 10 percentage points vis-à-vis the dollar.
The country, which is famous for its glass and related manufacturing industries, is now at a literal cul-de-sac of importing as the only bank that has perennial foreign reserves has backed down from issuing further letters of credit to companies. This is according to The Africa Report.
Letters of credit are essential business-to-business documents that act as a mutual agreement to provide something like financial help in the interim of which loan the other party will have succeeded in its endeavors and paid back the dues.
Ethiopia industry milieu is notoriously famous for its sweeping reforms and sometimes dilapidated polices. The most historic reforms were in the 1970s when the government nationalized all major industries, a move that saw private investors, especially foreign, move out of the country.
The current context also bears some overtones of that epoch for now observers deem that state corporations and enterprises that focus on exportation gain first priority when seeking a forex license.
The reverberations of the reigning scarcity of foreign denominations, especially the dollar, has seen unscrupulous exchanges in private bureau de changes where agents charge exorbitantly in exchange of the Birr notes that are in plenty.
Be it as it may, it appears that some companies in the manufacturing and especially the construction industry are maintaining resiliency by having partners in Gulf countries like the U.A.E. that they perform import-export business with, thus ensuring a break-even point between remittance and receiving.
The fiscal situation in Ethiopia is common on the horn of Africa region, with the most recent cases including South Sudan.
The government has, however, reiterated that as for now, it is focusing on the most dire state industries which are the backbone of the country’s economy in agronomic, textile, as well as, chemical factories, some of which buy substitutes abroad whereas the others export their products.