By Asrat Seyoum

It seems that the problem of foreign currency is going be with Ethiopia for a while. During the past few years the problem was more pronounced. A lot of studies, discussions, and conferences dwelt with the problem but were unable to come up with a lasting solution.

All kinds of challenges could pop up in an economy like ours (heated-up economy). In general, the solutions could not be far from two options. The first one is to hit the problem head on and come up with a remedy while the other is just to accept it and try to find ways around it. In fact, the decision to be made depends on the nature of the problem and the time needed to solve it. So, to take a logical and informed action, it is imperative to understand the root cause of the problem and to remedy it.

If one views Ethiopia’s currency problem in this frame, the most essential question is; “For how long would the shortage be there?”
Pundits have long defined foreign currency as nothing but the price changed by one country for another. Unfortunately for a developing economy like ours, the rate (price) is determined by the cross-border trade interaction between countries. It is unfortunate for us because both in terms of value and quantity of traded commodity, we yield to our partners. On the ground we import far more than we export, maintaining a rather persistent and adverse term of trade making our currency attract less demand and hence commanding small price (exchange rate) than that of our trading partners. The same thing is true for the currency reserve as well; we sell less, buy more and retain no reserve.

The negative foreign trade structure is not our predicament. To be precise, it is a question of natural endowment and that output is produced by using the naturally endowed resources. The Ethiopian economy is dominantly agrarian with labor and land at the heart of the resource pull. Putting the above facts together, at least for quite some time, our dominant export product would be primary agricultural products with small market value, while the imports would remain to be exactly the reverse.

To change this structure requires, among other things, time. Thus, under option one, long-lasting solutions would come but cannot be realized within a limited amount of time. However, is it possible to keep going in the face of the acute currency shortage?

A business luncheon organized by the Addis Ababa Chamber of commerce and Sectoral Associations (AACSA) on Thursday was engrossed in this issue (currency problem). The keynote address focusing on currency delivered by Amerga Kassa, President of Nib International Bank, was the one that spurred the discussion at the gathering.

Only, to the dissatisfaction of the private business community and members in attendance, Amerga’s presentation tried to shed light on the problem. The bigger picture in terms of the economy-wide implication was the focus of the president. However, an interesting twist is yet to come from the discussion sessions.

The business community at the luncheon was actually more interested in the possible ways around the currency problem which seems somewhat similar to the option two described above. More or less, the ideas raised by the business community sounded like, “Ok! we have a situation, how can we go around it?”

Some cited the concern that there are more importers than exporters in the country. The number of importers, close to ten thousand, was mentioned as an important factor for the dwindling foreign currency in the country, whereas exporting companies do not even number two thousand.

On the other hand, lack of strict control on imports that made it difficult for the authorities to prioritize whatever amount of foreign currency available was also identified as another potential area where the reserve problem could have been alleviated.

With regard to prioritization it was also said that the existing system that issues letters of credit according to the principle of first come, first served should be revised to incorporate a free bid system. Whoever can offer the highest price for the currency should be able to get it, the assumption here being the most efficient business would outbid the others and use the resource.
On a different note, some were also suggesting an inter-bank currency trade to enable the banks to satisfy their customers' need.

Some of the banks might be good in export and have better foreign currency available to them than the others. As a result, it would make sense to exchange currencies, at the same time opening another frontier of business.

What seems different about this discussion is that most of the proposed solutions are directed to private business themselves. Basically, the suggestions tend to concentrate on putting the blame on the way they do business.

For an innocent bystander, it is refreshing to watch the roundtables. The discussion also followed a different approach which is accepting the currency problem, which is going to be here for a while and it was focused on wisely utilizing what we have.

EthiopianReporter