A committee of five under the National Bank of Ethiopia (NBE) has accepted offers from three European companies last week, in response to its desire to print Birr notes, disclosed sources.

Ethiopia’s central bank wants to order the printing of 50 Br and 100 Br notes with total value of 52 billion Br, in what government sources said is a bid to replace all-in notes under circulation. It will be the largest order ever, more than 90pc of what it had printed in 2010, at a cost of over 10 million dollars.

On Monday, September 5, 2011, De La Rue Currency of United Kingdom (UK), Giesecke & Devrient (G&D) of Germany and Francois-Charles Oberthur of France have submitted their technical offers, while a Dutch based company was disqualified.

The committee of five, under Getahun Nana, vice governor for Financial Institutions Supervision at the central bank, is expected to receive the financial offer in two weeks, subsequent its short listing of the bidders who make it through the technical qualifications. The three companies are, however, the most known global operators in the note printing industry; Vice Governor Getahun travelled to France, Germany and the UK a few months ago visiting their plants, sources close to the bid process disclosed to Fortune.

The successful bidder will be given the contract to print 46 billion Br worth of 100 Br notes, while the remaining is for 50 Br notes, according to the bid document. Delivery of the notes within a four month time is one of the major criteria.

There were 21.5 billion Br worth of 100 Br notes and 3.4 billion Br worth of 50 Br notes in circulation at the end of June 2010, according to data from the NBE.

Considering that the latest order is to be made within a short period of time from the last time the central bank had made an order to print, not all the new money is to be used to replace damaged notes, macroeconomists privy to the matter disclosed to Fortune on a condition of anonymity.

“Only 20pc of the new money is going to be used for that,” a macroeconomist with knowledge on the issue said. “The rest is to be injected into the economy.”

The reason for this is partly the increase in the budget which is an indication of increasing economic transactions, according to the macroeconomist. Inflation in the market is a reason as well.

Macroeconomists are concerned that injection of new notes in the economy may exacerbate inflation, which has been a thorn in the government’s macroeconomic management. The administration of Prime Minister Meles Zenawi envisions a high-growth but low inflation macroeconomic environment, in its five-year plan for growth and transformation. Judging from its similar roadman in PASDEP over the previous five years, it is a target to remain very illusive. The monthly aggregated inflation for July 2011 recorded consumer price index at 39.6pc, far from the government’s expectations.

The IMF, after a visit from its mission, had released a statement arguing that the principal macroeconomic challenges for the country was surging inflation, whose main cause was the increase in broad money supply in the economy. It had risen to 35pc by the end of March 2011.

Broad money supply in the economy stood at 104.2 billion Br in 2009/10, according to data Minister of Finance and Economic Development (MoFED.)

Macroeconomist fear that the addition of the new notes into the economy will be inflationary pushing that number even higher if injected into the economy all at once.

“The value of the Birr might depreciate further against a basket of major currencies unless there is adequate reserve in those currencies,” a macroeconomist told Fortune.

The foreign currency reserve with the central bank during the 2010/11 fiscal year stood at around three billion Br.

Although how much the central bank has to pay to print the note is to be determined once the financial bids are opened in few weeks, it is expected to cost around 30 million dollars, according to sources close to the workings of the bank.

By HAILU TEKLEHAIMANOT
FORTUNE STAFF WRITER