Addis Abeba came to a standstill when cars were forced to pay for petrol using digital technology rather than cash last week. Several technologies started offering their services to facilitate cashless transactions with the state-owned Telebirr taking the major share. However, public discontent and confusion were visible as cars queued for hours. Authorities contend it is part of the reformation to materialise digital transactions, arguing that it will regulate the distribution and reduce wasted amounts. The unexpected decision caused a slew of issues. The new method appears to be difficult for novice users, while others were unable to make payments due to system failure. Fuel providers observed decreased sales as the concept of making cashless service necessary is lost on legal experts who believe that customers have the right to get service in cash.
Month: April 2023
What Problems Do They Want to Solve, at What Cost, Whose Expense?
Public frustration and bewilderment were palpable as motorists queued up for hours in Addis Abeba last week. The sudden edict by the transport authorities mandating fuel purchases through mobile payments only had thrown the city into chaos. It was a decision made by officials sheltered from the agonies of self-inflicted pain and their indifference to the plights of citizens.
The hypothesis for the decision seemingly aimed at fostering financial inclusion and recapturing funds outside the banking system. It has, instead, exposed a series of policy and implementation flaws that have left many questioning the wisdom of such an abrupt transition.
The rationale behind the authorities’ decision to enforce cashless transactions at petrol stations is not without merit. Daily public expenditure on fuel could amount to roughly 350 million Br, which makes up about eight percent of the 1.54 trillion Br provided to the economy by the central bank last year. A considerable chunk of Ethiopia’s broad money supply—close to 13pc—remains outside the formal banking system, a testament to the authorities’ struggle to achieve widespread financial inclusion.
The federal government has set its sights on an ambitious target: ensuring that 70pc of the adult population uses the financial system in 2025. A coordinated effort between Central Bank Governor Mamo Mehiretu, Transport Minister Alemu Sime, Ethio telecom CEO Firehiwot Tamiru, and CBE President Abie Sanu to digitise the nation’s transactions could be an admirable pursuit. The use of electronic payment systems for sending or receiving money currently hovers around a meagre 15pc, with a similar percentage of the adult population possessing mobile money accounts three years ago.
This pales in the face of the 1.35 billion people worldwide who have registered mobile money accounts, processing over one trillion dollars annually. Two million dollars are transacted digitally almost every minute.
The move towards digital payments may indeed drive progress on financial inclusion. Yet, the authorities’ hasty implementation of this policy and their seeming disregard for its broader implications have sown confusion and discontent among the populace. The long lines of vechiles last week were needless as wasting time waiting was disconcerting.
By forcing a cashless fuel payment system upon a country without adequate groundwork, Prime Minister Abiy Ahmed’s administration appears to have prioritised its policy objectives over the needs and preferences of its citizens.
One glaring oversight in this sudden policy shift is the matter of public safety.
Petroleum companies mandate that gas stations display safety precaution notices warning against mobile phone usage to reduce distractions and maintain public confidence. The authorities’ failure to consult these companies` executives on safety concerns before enforcing the cashless payment policy raises questions about their commitment to public safety and due diligence.
Meanwhile, Addis Ababa’s roads were choked with cars waiting an average of two hours to refuel, a direct consequence of the difficulties and inconveniences associated with using the digital platforms Ethio telecom and CBE provided. Some petrol stations were reportedly unwilling to let motorists use CBE’s apps for payment. The ensuing chaos laid bare the authorities’ naïveté in assuming that every car owner or driver would possess a mobile device and be comfortable navigating the digital ecosystem. The assumption that everyone should be adept at using digital tools appears to be a glaring disconnect from reality.
Although 68pc of Ethiopian households are believed to own mobile phones, data from the International Telecommunications Union (ITU) indicates that less than a quarter of the population has access to the internet. A combination of limited digital infrastructure, inadequate access to digital technologies, and high levels of illiteracy contribute to the country’s low digital literacy levels.
The transport authorities’ apparent disregard for Ethiopia’s monetary laws adds to the trouble. These laws clearly state that Ethiopia’s currency notes are legal tender, and service providers cannot deny consumers the right to use them for services or products. The mandatory use of mobile banking for fuel transactions flouts these laws and could potentially undermine the country’s monetary stability, trade, and economic growth.
Governor Mamo’s seeming indifference to enforcing the federal law passed in August 2008—that “Birr notes lawfully in circulation within Ethiopia shall be unlimited legal tender in [the] settlement of all public or private debts”—only exacerbated the situation. Monetary policy relies on the central bank’s capacity to control the money supply and interest rates. The central bank remains a bystander when its influence wanes when businesses are forced to reject its faith currency, undermining its ability to stabilise the economy or combat inflation and counterfeiting.
A legally enforceable form of currency is essential for governments to implement and control monetary policy through their central banks. By managing the money supply, central banks can influence interest rates and inflation, both vital for maintaining a stable economy. They also collect taxes in their national currencies, requiring businesses to accept them to ensure a consistent and steady revenue stream.
Legal tender laws help governments maintain control over their economies and protect against external shocks or influences from foreign currencies. Pursuing economic policies that serve national interests becomes possible by defining a single and legally enforceable currency. This enables governments to combat counterfeiting and maintain the integrity of the money supply.
However, the failure to enforce a regime in which everyone in society has access to a widely accepted form of payment, regardless of socioeconomic status, can create inequality. Certain segments of society may be excluded from participating in the economy, increasing income inequality and social unrest.
The policy’s unintended consequences also include the potential fragmentation of the payment ecosystem. This could lead to inefficiencies, increased transaction costs, and difficulties for consumers and businesses navigating the market, as evidenced by the chaos that ensued last week.
The authorities would do well to reconsider the policy and consult market forces, including petroleum companies, financial institutions, and the public. This would help to ensure a more inclusive and efficient approach to financial inclusion and digital transactions. Their quest for financial inclusion and digitisation is commendable, but the enforcement of this abrupt policy change has left much to be desired. It is unwise and unnecessary.
Considering all concerns, they can chart a more inclusive and sustainable path towards a cashless future. Achieving the delicate balance between policy objectives and the citizenry’s needs is crucial for long-term economic success.
Ultimately, the ongoing episode should serve as a cautionary tale for policymakers. The allure of rapid progress can sometimes overshadow the need for careful planning and measured implementation. As Ethiopia continues its journey towards a digital economy, the lessons learned from this disconcerting disruption should inform future policy decisions, ensuring that progress is made to benefit all segments of society.
Mandatory Reflex to Digitised Payment System
Yonathan Abebe, 27, joined the queue at one of the Total Energies service outlets near Mexico Roundabout to refill gas on a cloudy morning last week.
Some of the dozen vehicles before him had been waiting for hours.
He stepped out of his white truck and began pacing restlessly- his eyes turned red from fury and his palms were ashy from the misty cold.
The impatience turned to frustration as hours passed without significant progress towards the gas dispensers.
“I was supposed to be at work two hours ago,” he told Fortune.
Yonathan provides delivery service for a private company with weekly earnings of 600 Br. Living in a Kebele house around the Abinet area with his mother, the breadwinner is anxious that he might be losing money while waiting around.
The compulsory cashless transaction at gas stations that began last week has drivers in the capital spending hours in what seems like a never-ending queue.
The plan to make the digital fuel payment system mandatory was announced by the Ministry of Transport & Logistics a month ago. Minister Alemu Sime (PhD) said the payment is integrated with a fuel registration and allocation system in service outlets across the country.
The transaction has been made using a digital platform Telebirr, powered by the state-owned Ethiotelecom.
No less than four facilitators from Telebirr in green shirts are dispersed on every corner tending to drivers who are having trouble communicating with their phones.
Selamawit Kifle is one of the facilitators circled by four men waiting to get their problems addressed. Some are struggling with activating their accounts, while others are waiting to open a new one. It takes her up to 10 minutes to serve each person.
“It’s getting better as the days pass,” she said.
Telebirr application is implemented using both the USSD code and its Super App in 150 gas stations in the capital.
Over 212 million fuel transactions have been made through Telebirr since the new requirement was enacted. The subscribers increased from 27.2 million in January to over 31 million last week.
Mesay Wubshet, chief communication officer at Ethiotelecom, believes enough human resources have been dispatched with up to 10 facilitators at every station to register new users.
According to him, the literacy issue among customers and the service outlets not working at their full capacity contributed to the debilitating lines and long hours of wait.
The new system seems to challenge most that are unfamiliar with the application. However, customers who had trouble making payments due to system failure were also left wandering for solutions.
Hiwot Getachew who had waited for over two hours saw her Telebirr account was out of balance. She tried to access her Commercial Bank of Ethiopia account and transfer money, but the order failed continually.
“The system doesn’t work,” she said frustrated.
Mesay completely disregards the notion of system failure but admits that there could be a speed issue as the telecom has a large number of subscribers.
“We’ve been monitoring the network service centre and internet towers very closely,” he told Fortune.
Public transporters seem to escape this impediment as they have been accustomed to the App for 10 months while benefiting from a fuel subsidy.
Daniel Tilahun, a taxi driver for eight years, waited in line for less than 20 minutes before the pump attendant sought him out from the lined-up vehicles and let him up front. He was done in two minutes.
However, attendants have not had it easy as they spend more time than they are accustomed to with one customer to receive payments. Spared from it are those that have exhausted their stock.
A branch of Total Energies around Meskel Square seemed rather empty. Five pump attendants are idle, discarding passing drivers eyeing their vicinity.
The station sells up to 25,000lt of fuel during an average day tending to more than 200 drivers.
“We’re out of fuel,” shouts Abebe Argaw. “We’ve been out since morning,” he told Fortune.
Abebe, who had been attending pumps for six years claims to have “never felt more tired” serving countless people who come by without a know-how on the use of the App.
He observed that customers forget their passwords while others come in without opening an account. The cashless transaction disregarding his usual tips of up to 300 Br per day is also not helping with the lack of enthusiasm.
Despite the tiresome assistance to the flooding customers, managers try to see the flicker of light, claiming the digital system appeases the wide cash transactions.
“It’ll also allow authorities to gain proper control over the fuel supplies,” said Girma Assefa, manager of the Stadium service outlet of Total Energies.
The Petroleum & Energy Authority regulates fuel imports and distribution from the ports in Djibouti to 146 stations in the capital and 1,100 gas stations across the country through 43 oil companies.
Bekelech Kuma, the Authority’s communications head, concurs the digital system will combat fuel shortages in gas stations and cross-border contraband trade.
According to Bekelech, the Authority has found gas stations hoarding despite the adequate supply while others have been selling more than the set tariff. She disclosed the Authority will supply fuel after going through the number of transactions made by the stations.
Fuel suppliers had raised concerns over the declined number of sales during the week claiming to have taken extra time to serve a customer.
Bekelech however, argues that most stations do not operate at their full capacity using one-third of their dispensers.
“It’s not because of system failure,” said Bekelech.
Authorities believe that digitisation will regulate the distribution and reduce wasted amounts.
Abduleber Shemsu, fuel reform facilitator at the Ministry of Transport & Logistics, disclosed that digital fuel transaction has been part of the reformation beginning two years ago.
He said the Ministry has paved the way to create awareness for the past two months. The lack of proactiveness from consumers, coupled with the panic surfacing over the week, has contributed to the unnecessary long lines in the city.
“It’ll return to normal in a couple of weeks,” he told Fortune.
He recommends customers be patient with the glitches that might happen along the way until it dies down.
Several other options are launching their service over the week to facilitate the cashless transaction.
Earlier last week the Ministry of Transport & Logistics and the state-owned Commercial Bank of Ethiopia (CBE) struck a deal which came in two sets.
Dubbed the “Fuel App”, the first option works using the CBE Birr payment system. The second one has an application with the moniker “Nedaj” that will be able to integrate CBE accounts and allow users to transact payments. The local software developer, Eaglelion System Technology Plc, partnered with the Bank a few months ago.
EagleLion added a new feature, “Nedaj Standby”, to the new application, where customers will click one button and immediately make transactions.
“It makes the application easier to use,” said Besufikad Getachew, CEO of Eaglelion told Fortune.
Besufikad disclosed that the company has made plans to work with all the commercial banks, where some have already shown interest in working with Eaglelion.
Besufikad says over 100 gas stations and 50,000 drivers have registered daily.
Users on social media were dismayed over the registration system, which included a 50 Br registration, 20 Br subscription and five Birr service fee that was removed from the app a few days later.
Established three years ago with 15 million Br in registered capital, EagleLion has developed micro-credit and digital remittance platforms for Dashen Bank and the Bank of Abyssinia.
Abdulber disclosed that 10 commercial banks have shown interest in servicing the digital payment system to the Ministry. He said they are discussing the requirements and technical aspects with bank executives.
The notion of making cashless service mandatory is lost on legal experts who believe that customers should have the right to get service by choosing the mode of payment.
The monetary law under the National Bank of Ethiopia stipulates that the currency notes are legal tender and service providers cannot deny customers the right to use the services. A lawyer who requested anonymity argues that unless a revised law making digital payments mandatory in selected areas is passed, it remains against the monetary law.
“Service provider cannot say no to cash,” he told Fortune.
According to Fikadu Digafe, vice governor of central bank, the Bank has authorised both the electronic and cash payment systems. However, he said the central bank remains a bystander when it comes to whether a service provider shall reject or accept the cash currency.
“It shall be seen under the law, not by us,” he told Fortune.
The nationwide operation is set to unfold next week.
Serkalem Gebrekiristos, the former CEO of Dalol Oil, said while the compulsatory system is opening doors to transparency and control of the cash flow, it was rushed in without the proper analysis of the impact on wider society.
Transport Ministry Collects Half a Billion Birr from Penalty
Traffic penalties have earned the Ministry of Transport & Logistics half a billion Birr within nine months.
The figure was revealed as the newly appointed Minister Alemu Sime (PhD) presented his first nine-month performance report to the Standing Committee of Urban Infrastructure & Transport Affairs chaired by Shewit Shanka last week.
The 500 million Br collected nationwide from four million violations as part of the ongoing effort to decrease traffic accidents, according to Jemal Abaso, CEO of the Road Safety & Insurance Fund.
While the report from the Ministry suggests deaths from traffic accidents during the period was 1,574, prior reports by Bloomberg Global Roads Safety Initiative and the Insurance Fund set the death toll at almost twice as much.
The Ministry had conducted sudden technical inspections on over 137,000 cars.
“Serious gaps exist in the technical inspection of vehicles,” said Jemal suggesting that the certifications were being distributed outdoors.
The CEO indicated that young drivers with insufficient experience and in a rush to make ends meet set forth by the vehicle owners contributed a significant portion to traffic accidents.
He also believes that the competence of driving schools should be regulated, pointing the mandate to the Ministry of Labor & Skills.
Experts attribute the situation to a character flaw more than a lack of skills.
Debebe Tenaw, manager at Safety Driving School and author of a book on traffic safety with over two decades of experience in the transport sector agrees that drivers who are trying to make a quick buck by hauling through hundreds of kilometres within a few hours are huge contributors to the high number of accidents. He reasons that fatalities are bound to occur if 20 people are cramped in a 12-seater vehicle.
The expert acknowledged that imported vehicles which had their steering wheel on the right side originally could contribute to accidents. However, he argues that the proliferation of driving schools has actually brought down the number of traffic accidents per 10,000 which used to be above 100 a mere two decades back.
He believes the solution lies in the targeted character development of professionals in every sector, as disregard for the integrity of human life is too common.
“Penalizing drivers won’t bring the desired result,” Debebe told Fortune.
He recommends that comprehensive record keeping of traffic violations combined with the continuous character development of all professionals on the dignity of individuals will lead to lower traffic accidents.
With close to 130,000 cars entering the streets yearly, proper management of third-party insurance which has registered 614,923 cars and strict safety regulations were indicated as top priorities by officials from the Ministry.
Sani Mohammed is a driver who manages a pharmaceutical supply company and spends most of his days driving around the capital. He observes that most public transport service providers constantly rush while fully packed in technically subpar vehicles.
“The problem is not related to skills,” he said.
The 30-year transport road map put forth by the Transport Ministry was also discussed in terms of decreasing the number of traffic accidents per 10,000 which stands at around 26, to an internationally acceptable 10pc in the long run.
Alemu reflected on the smart traffic management system, electronic ticketing and GPS systems being placed in public transport services as the long-term trajectory when discussing further efforts to integrate and modernize the country’s logistics and transport sector.
“Digitization is the only viable future,” he said.
The sentiment was also reiterated by State Minister Bereo Hasen, who remarked that the Ministry has taken disciplinary measures against 3,000 drivers who exploited fuel subsidies due to digital systems’ use.
The Chairwoman of the Standing Committee concluded the session by emphasizing the need to emulate other developed countries in how they have managed to decrease the death toll from traffic accidents while generally praising the Ministry’s performance.
“Even one lost life is too many,” said Shewit.
Security Concerns on Ethio-Djibouti Railway Pose 145m Birr Loss
A staggering amount of possible losses have occurred due to repeated derailment of the Ethio-Djibouti railway with security issues indicated as critical hurdles to the pathway.
According to the State Minister of Trasport & Logistics Denge Boru, 145 million Br of possible losses for a combined 9,000 minutes is estimated within the nine months.
Denge stated this during the Ministry’s performance report presentation to the Standing Committee on Urban Infrastructure & Transport Affairs chaired by Shewit Shanka last week.
He said the cross-border path through Methara and Welencheti towns, is prone to armed theft.
While attempts at the railway are a recent phenomenon, assaults on drivers have persisted over the last two years with increasing frequency.
President of the Ethiopian Transport Employers’ Federation, Birhane Zeru concurred the problems around Welencheti are still persistent with several drivers having been kidnapped a mere three weeks ago.
“It is a really difficult problem,” he told Fortune.
Birhane who heads the 9,000-member strong federation says the attacks are financially motivated taking advantage of a security gap. He hopes the newly formed task force between police and the army will bring some respite to the distraught drivers plagued by theft and repeated kidnappings.
He has been advising the drivers that a strike would not solve the issue while continuing to report incidents to the Ministry.
Despite a coordinated effort with both regional and federal police being launched, creating a sense of ownership in the communities through which the train and freight trucks pass through was referred to as paramount by the Ministry’s officials.
The Ethio-Djibouti railway which spans 786Kms still managed to deliver 1.5 million tons of goods during the period.
Ethiopia’s logistics needs during the period amounted to 9.9 million tons of goods imported and 825,000 for goods exported almost exclusively through the ports of Djibouti. Moyale port accounts for less than one percent of the country’s logistics demands while Berbera and Tajura ports take 2.9pc and two percent, respectively.
“The 96pc reliance on Djibouti for the logistics needs of Ethiopia is not a sustainable long-term strategy,” said the newly appointed Minister of Transport & Logistics Alemu Sime (PhD) during the Parliament session. He said efforts would be required from Parliamentarians to diversify port access.
Despite insinuations five years ago on the possible utilization of the Eritrean port by Ethiopia as political ties were reconciled by the two countries, the Minister revealed that they still have not signed an agreement. He indicated that most of the protocol work from the Ethiopian side has already been completed.
The largest logistics company in the country, state-owned Ethiopian Shipping & Logistics which has a fleet of 609 trucks and a revenue of 32 billion Br in the last nine months, does not seem to be familiar with the incidents during the period.
“We’ve not experienced any incidents of that nature,” Siraj Abdulahi, head of freight forwarding at the company told Fortune. At a press briefing held at company headquarters last week, the company did reveal that delays in the transport of goods in early September had occurred on the Galafi road connecting Ethiopia and Djibouti.
Ethiopia’s and Djibouti’s economic destinies are heavily interlinked, as evidenced by an IMF report four months ago which suggested that a two-year war in Ethiopia had resulted in a marked decline in the economic performance of the small country.
The IMF report suggested that heavy infrastructure projects that were debt-financed to facilitate the smooth transport of goods are at the root of the debt distress faced by Djibouti. Djibouti’s debt-to-GDP ratio stood at 72pc in 2021, compounded by a narrow tax base and a large informal sector.
Experts in the logistics sector also reflect the sentiment expressed by the Minister on the necessity to diversify Ethiopia’s logistics corridors.
A veteran in the industry who spoke to Fortune emphasized the need to utilize Berbera port more comprehensively. The expert said the Berbera port is keen on business relationships putting up directions in Amharic within the compound built by DP World.
Although the expert believes the economy will keep growing with or without diversified port access, he cautioned on the likely increased logistics pressure and heavy reliance on one provider.
Acknowledging that excluding Somaliland from IGAD might lead to complications in cross-border insurance, the expert emphasized that the ball is still in Ethiopia’s court to steer negotiations for establishing banking and customs protocols that could see an increased volume of goods being processed through Berbera.
Digital Procurement System Faces Drawbacks
The federal institutions compelled to electronic procurements after a couple of months are apprehensive over the drawbacks observed in the pilot following the Public Procurement & Property Authority’s decision to exit the manual procedures.
Experts from federal institutions claim despite the enduring sides the decision is rushed owing to the premature stage of the system to shoulder the annual procurements made by federal institutions.
Aschalew Dejene, chief procurement officer at the Ethiopian Roads Administration, observes challenges related to retrieving essential data, such as the lists of goods and services offered by suppliers suddenly vanishing from the system.
“It protracts procedures beyond the initial timeline,” said Aschalew.
He said issues related to the computational capacity of the system to perform calculations essential to the procurement procedures are another complication faced by procurement personnel.
The awareness gap observed from the suppliers’ side to take part in the bidding is also compelling the institution to extend opening dates for bids, according to Aschalew.
Haji Ibsa, head of the Authority, admits the existence of systemic problems with the newly developed software but firmly believes the measure taken by the Authority is an indispensable step to realize the plan to break away from manual procurement that has been draining the scarce resources of the country.
“We need to face challenges,” he said.
The Authority plans to make electronic procurement compulsory in all 125 federal institutions and universities.
The pilot project launched about 10 months ago with nine federal institutions has served to have preserved a significant amount of public resources that used to be wasted due to inefficiency.
Close to 74 federal institutions began implementing electronic government procurement (e-GP) at the start of the fiscal year, where 70 had either floated a bid or received products and services using the platform.
The selected institutions were recommended by the Ministry of Finance’s study taking the human power, implementation of an integrated financial management information system (IFMIS) and the annual procurement load into account.
According to Tadesse Kebede, e-GP project manager at the Authority, the lack of suppliers on particular items such as vehicle spare parts and furniture is one of the major exceptions compelling institutions to procure using manual procedures.
The project manager believes that electronic procurement leaves no room for corruption and unnecessary expenses in administering bids while allowing institutions to control a wide range of issues ranging from planning to the administration of contracts online.
“It’ll significantly decrease complications,” Tadesse told Fortune.
The institutions have floated bids worth over 42 billion Br and procured in the amount close to 4.5 billion Br on the platform.
A study conducted by the Copenhagen Consensus shows the implementation of e-procurement systems can save 6.5pc of annual expenditure on average for developing countries.
Governments are the largest buyers constituting 15pc share of the global GDP. The huge amount of monetary transactions circulated in procurement opens a wide room for corruption that cost huge sums to the global economy. Recent developments in electronic procurements have provided epitomes in addressing issues related to corruption and adequate utilization of government resources.
The system is developed by the local software developer Perago Systems, bagging the contract for 18 million Br.
Behailu Sintayew, a fintech operator with over 14 years of experience, said measures taken to digitize governance systems are sensible steps considering the global trajectory toward digitization. However, he observes ambitiousness in most of the digital initiatives rather than taking one step at a time. He referred to the gas station’s long queues after introducing a mandatory fuel payment system and its repercussions.
Behailu said making e-GP the mandatory means of procurement with all the issues raised by stakeholders and precarious network infrastructure is likely to create destruction on the entire system as glitches can impede institutions from performing ordinary tasks.
He recommends beginning the process complemented by the manual system until the developer addresses issues and ensures reliable network coverage.
“Our digital ambitions should be balanced with our technical capacity,” Behailu told Fortune.
Milk Shortage Meets Dairy Industry Regulation
A bill which regulates participants in the dairy industry put forth by the Ministry of Agriculture is making its way to the parliamentary grill.
It requires all parties with the exception of smallholder farmers, to get a licence, refrain from the infusion of external ingredients and ascribe to standard requirements set by the Ministry. It prohibits mixing milk from different animal sources, restricts the sale of raw and processed milk and its derivatives to licensed vendors and sets new modalities for sale.
Raw milk collection centres may be established by authorized cooperatives, suppliers who receive quality standard approval from the Ministry and government bodies who see a supply gap within their respective administrative localities.
Sale from these collection centres may be conducted either through long-term contracts, open bidding by prospective buyers or pre-agreed sales contracts which should be in writing.
Production and distribution of milk had not received regulatory rigour despite per capita consumption of milk averaging around 20ltr and annual production standing at 3.2 million litres from 10 million cows.
Girma Hailu senior expert on dairy resources at the Ministry expects to identify the gaps in the supply chain and address the findings.
“It has gone through evaluation by several stakeholders,” said Girma.
Close to 150 million households around the globe are engaged in milk production, according to estimates by Food & Agriculture Organization (FAO). Worldwide milk production has increased by more than 59pc, from 530 million tons to 843 million tons in the last three decades. New Zealand, U.S., Germany, France, Australia and Ireland have the highest milk surpluses while China, Russia and Italy have the largest deficits.
A proportional increase in global output has not been observed in the African continent from the combined impact of poverty and adverse climatic conditions.
Ethiopian dairy production averages 1.7ltr per cow over an average lactation period of 180 days. The rural mixed crop-livestock dairy system produces the largest share of milk, contributing 72pc of the total milk supply from 65pc of the milking animals.
The bill which has been languishing due to shifting mandates for the last four years to regulate dairy products by the Ministry, gleams hope for a supply chain soured by poor quality and unmet consumer demand.
Tigist Shewangizaw has stopped buying locally produced milk for her four children altogether.
She used to buy from a door-to-door salesman who delivered every other day. When that was no longer available, she switched to imported powdered milk. Growing up on a farm owned by her parents, Tigist preferred to buy organic milk but claims she has not been able to get the familiar taste from the market.
“It’s basically water,” she told Fortune.
A four-year research on the produce found that 85pc of raw milk and 90pc of pasteurized milk are found in poor hygienic conditions in Ethiopia concluding that the majority does not qualify as milk, after looking at 1,500 samples across several regional states.
A nutritional composition of 2.56pc protein and 2.57pc fat all the while a tenth of the content is water added on to increase quantity revealed the unfortunate condition of the produce. Milk is supposed to contain 3.5pc protein and 3.4pc fat to be categorized as such while locally produced one that has predominantly taken the traditional route lags behind the standards.
The study conducted by Addis Abeba University, Ethiopian Institute of Agricultural Research (EIAR), Kansas and Penn State universities recommended labelling of milk as skimmed, whole, raw and lactose-free as a possible remedy for the information gap that exists between suppliers and consumers.
Managers of dairy farms point towards the grassroots and believe the problem starts from the lack of proper regulation of smallholder farms.
Hibret Dairy Cooperatives S.C. has the capacity to produce up to 5,000ltr of milk a day. Located in the outskirts of the capital around Akaki Kaliti district, the company usually source its raw milk from nearby smallholder farms which are leaving the business and the area at a fast pace.
The Manager, Wendimeneh Ashebir, reasons that improper collection from the farms, and the shortage of veterinary pharmaceuticals and animal feed have colluded to create the supply shock forcing his company to cut production by half.
He observes the transportation of raw milk to processing plants requires quality preservation.
“Regulation is absolutely necessary,” he told Fortune. “Anyone with a jerrycan shouldn’t be able to sell milk.”
Experts in the market have different notion.
The problem lies with intermediaries rather than suppliers, according to Abdulhamid Seid, a marketing strategist with close observation in the sector for close to a decade. He indicated that farmers in some parts of Oromia and Amhara regional states produce high-quality milk with up to 4.5pc fat and protein content. Still, intermediaries dilute the produce before it gets to the hands of customers.
For Abdulhamid, the fact that most milk trade is done past midnight indicates the possibility of illicit activity. He presumes that adulteration is more likely done by the agents and not the farmers themselves.
“There are ruthless links between the farmers and the market,” he said.
According to the expert, chilling centres, a space to house the milk to keep it from perishing, and checkpoints between regional borders are deemed important.
While he encourages the imposition of stricter regulations on the dairy supply chain, controlling the initial input is critical to him. Awareness creation on behalf of both farmers and consumers along with a parallel regulatory framework are referred to by Abdulhamid as long-term solutions to prevail over market imperfections.
A stronger regulatory framework has been in operation in Oromia regional state since last year according to the marketer, which could be emulated on the national scale with more stringent follow-up.
Labour, Skills Ministry Rolls Out TVET Reformation
A bill to form a link between the labour market demand and the field of specialisation in technical and vocational training was put forth by the Ministry of Labour & Skills.
Under Muferihat Kamil, the Ministry hopes to align the Technical & Vocational Educational Training (TVET) system with the labour policy. It has grouped dozens of TVET institutions into categories, each specialising in specific fields based on demand in the labour market.
The bill stipulates that a linkage council will be formed to analyse the demand of industries and prescribe directions to the fields of students where industries that will collaborate in linkage will be granted incentives.
According to Moedin Abamoga, the Ministry’s training and institutional capacity building director, the new framework will bring qualified and skilled labour into the market. The students graduating from vocational schools are not matched for the jobs available in the market, where graduates from specific fields are forced to become idle or choose different fields for lack of a better option, he said.
Moedin said the program will be implemented in 1342 TVET schools across the country, with the first round piloting program starting next year in 90 polytechnic colleges.
“Departments that don’t align with the industry demand will eventually be removed,” he told Fortune.
Although massive financial resources were directed towards vocational education, most of the funding was spent on physical infrastructure. Moedin observes the programmes remain “inadequate” to address the need for skilled labour.
“The goal is to balance demand and supply in the labour market,” he said.
TVET colleges will be following a training scheme where students will be trained by industry experts and have a first-hand experience in the workforce. The TVET regime rapidly expanded following legislation governing vocational education in 2004. The number of TVET institutes has quadrupled over the past two decades.
The Ministry achieved 83pc of its plan to create 2.6 million job opportunities over the past eight months, where over 200,000 people who graduated from higher education institutions benefit from the opportunities, with women taking more than half the posts.
TegbareId Polytechnic College was established in 1942 and is one of the schools rolling out the pilot. The College offers 12 programmes in eight fields, including manufacturing and textile, ICT and accounting.
Having 1,200 students graduate last year. It has been one of the few schools for the past five years implementing Industry linkage; where the college has integrated into more than 400 industries, where trainers will go to the industries to train for the jobs where more than 87pc of the students were employed last year.
GIZ is one of the companies supporting its reform efforts in vocational and technical education by making the industry linkage.
Takele Dejene, the college’s industry linkage & job integration head, said they have done a feasibility study to recommend to students to the concentrated demand. The college has registered 1,000 students in the current fiscal year, and half are enrolled in the ICT department.
“Many refuse to join manufacturing sectors where the job demand is high,” he said.
Injibara Polytechnic College is another college piloting the program in the Amhara Regional State. The college has currently enrolled 500 students in the fiscal year, four times less than what they enrolled in last year.
Mohammed Amin, deputy dean, said the proliferation of private colleges in the regional state has made technical schools less attractive to students.
“They prefer an easy way to get a certificate,” said Mohammed.
He said 60-70pc of the students who graduated from the polytechnic college were able to find employment in the regional state.
The ICT department consists of 45 students. Melka Workneh, a third-year student at the college, said he enrolled in the department following his interest as a young kid. Still, the fear of not being able to find employment after graduation has him worried.
“I don’t know what will await,” he told Fortune.
Experts recommend that learning based on personal interest be factored while aspiring to meet the industry demand.
Daniel Fikadu, a business lawyer, perceives that the new stipulation has been contemplated for the past 10 years and will help in subsiding unemployment since the industry sector is not bringing the anticipated production for lack of a skilled workforce.
He believes that this will be a way to bring in the needed changes to meet the human resource demand. However, the right of those learning to gain knowledge will be completely discarded when departments are removed.
“It comes at the cost of interest,” he said.
A Minimum Wage Law Warrants Some Dignity
Fortune: How has the labour movement evolved through its tumultuous half-a-century history?
Kassahun Follo: The beginning of the worker’s union was completely different from its current state. During the formative stages of the movement almost sixty years ago, there was no right to organize, bargain or a cap on working hours. There was no law bearing to employee rights and workers had to fight for the right to even sit at the negotiation table.
After the industrial revolution, workers had been fighting for their rights in several parts of the world reaching an understanding by members of the League of Nations that if worker rights are not respected there will not be lasting peace.
Despite the establishment of tripartite agreements in most countries between workers, government and employers, Ethiopia came into the industrial fold a little late leading to delayed legal frameworks for worker rights.
Early founders like Abraham Gemu created worker cooperative associations during the reign of Emperor Hailesellasie I and expanded these associations across the country. But even these initial stages were marked by serious grievances on working conditions.
We have to acknowledge the role the late Mesfin WeldeMariam (Prof) played in continuously supporting these early gatherings, even though they were mostly occurring under the shade of a tree or inside temples. CETU’s current makeup was built on the back of these previous champions who challenged an order without even an existing law to appeal towards.
Fortune: Have the goals and strategies of CETU changed through the years?
CETU has always gone to negotiation first followed by appeals to our member federations who have their own lawyers who then take the issue to court on behalf of the workers free of charge.
We are definitely more organized and strategic with our approach. There is a mobile platform under development that will allow the complaints of workers to be processed digitally. It is the first of its kind in the continent allowing a two-week response period by the Union. CETU is working to make the voice of the workers heard with little inconvenience to their daily lives such as asking employers for leaves.
Fortune: How would you describe the Union’s success in comparison to its past?
We did not have worker unions in many institutions early on. Now we have formed unions and negotiating boards in some places. We currently benefit at the very least from a member voice when new laws and directives are created by the government that have an impact on worker rights. But it took a while to create a tripartite board consisting of five members from government, employers and workers. We currently work to increase the right to form associations within every industry.
Retirement packages were non-existent for people employed within private companies even in my lifetime. CETU managed to push this through a mere 11 years ago. I was part of the team lobbying to make this a reality. Until then, most employees were left destitute post-retirement.
Over the last decade, a consistent struggle to decrease the income tax of workers has been one of our main goals aside from pushing the minimum wage law.
Fortune: How do you consider the current state of worker rights globally and locally keeping in mind the global economy?
Indeed, worker rights are not just the concern of a poor country but all nations of differing Economic makeup. It is a global issue. The growth of a country typically leads to a concurrent rise in living conditions which become inaccessible without a parallel increase in wages. A global shock like Covid -19 led to the laying off of several workers globally. Ethiopia actually managed that very well by prohibiting the firing of workers through an emergency regulation. The tripartite board helped in that period.
The 2008 global recession is another instance in which workers were greatly impacted. The current Russo-Ukraine war is an unprecedented hurdle to the global economy which stops the gear on several key social factors as well as creates a surge in price levels for everyone concerned.
On both a global and local scale the living condition of workers has become sensitive to shifts in the economy. Conflict, drought and inflation compound to make the independent person rely on others. We are constantly working to approach all concerned bodies especially the government with the identification of the problem and solution.
Fortune: What would you like to have achieved before foregoing your responsibilities?
Everything in CETU is done through a committee so no individual holds too much sway on the course of events, solely relying on our five-year strategic plan. But the realization of minimum wage laws in Ethiopia would be a significant milestone I would like to reach.
A minimum wage law warrants some sense of dignity at the very least. Once we manage to incorporate this into the body of laws governing the country, I believe successive generations will benefit from improved living conditions.
We have to at least be at par with our close neighbours. Kenya for instance has a minimum wage of 125 dollars, which the president even suggested would be raised by six percent at last year’s May Day celebration.
Fortune: Why do you think reports of worker rights violations or even despondence to the creation of worker unions for manufacturers within the country’s industrial parks have become frequent?
Two reasons stick out to me although it might arise from a combination of reasons. One such pivotal cause is that these companies come into the country allured by the promise of very cheap labour. It seems that they mix up ‘cheap’ labour with insensitivity to working conditions and basic labour rights. I have experienced instances in which the companies were surprised that there was someone around asking questions about labour rights “like other countries”.
Some of these investors actually hail from countries with better labour rights than Ethiopia but they somehow do not expect anyone to enquire about it here. So they become very averse as they think it will lead to insistence on professional safety requirements. But the right to safety gear was already ingrained by the labour law, which means adherence to safety protocols should not be contingent on whether the workers ask or not. It is not as if the workers are asking for some sort of luxury, it is a necessity.
The other one is a fear that somehow costs will rise if wages increase despite increased productivity. It is disputable to expect someone to live off with less than a 1000 Br salary for instance, if the employee eats even once a day with 50 Br will not make it past half the month.
Sometimes I hear the so-called economists warn of distortion to the market if minimum wages are in place. But we have at least managed to convince most of the employers in industrial parks over the past year. It is very immature to assume that companies that have crossed oceans to establish businesses in Ethiopia will hire anyone for charity. They do it because it is profitable and hence they should pay in proportion to their earnings after a certain threshold.
These companies are mobile. Most take their earnings out of the country instead of reinvestment in large-scale projects. They take a chunk of the change and leave with almost no skin in the game with regard to the workers or the economic destiny of the country.
Fortune: Economists project a large withdrawal from the labour force in the coming decades with the rise of automated systems and artificial intelligence. How do you look at the payment of a universal basic payment regardless of work?
Well, it requires a careful calibration between the substitution of labour with more advanced technology and the cost to the labour force left up in the air. The global North for instance does not merely fire its employees and bring in some technology to do the work. They have generous severance packages to accommodate several of the basic needs.
A job for someone on this side of the world could literally be a matter of life and death. Getting employment in the first place is quite a challenge. Immediate cessation of a livelihood would lead to serious instability. A serious instability in the social order will threaten the very existence of these new technologies that are somehow meant to replace the labour force. Suggesting basic income or another alternative would yield a solution to the issue although it needs rigorous scientific study.
Low-Cost, High-Impact Solution to Save Millions in Africa
Most people think malaria is a problem faced only by humid and hot countries. But over a century ago, the disease thrived as far north as Siberia and the Arctic Circle. It was endemic in 36 states of the United States.
Much of the developed world eliminated malaria in the 1950s through increased prosperity, housing and breakthroughs in medication and insecticides. As people became wealthier, mosquito breeding ground marshes were drained, and increased livestock meant mosquitos had animals to bite instead of humans. Improved nutrition made people healthier and less vulnerable, while increased incomes afforded better homes and insect screens.
Quinine and then synthetic chloroquine gave developed countries affordable treatment, and insecticides wiped out many mosquito populations.
Outside of sub-Saharan Africa, annual deaths plummeted from more than three million in 1930 to fewer than 30,000 today. Yet, much of the malaria problem has stubbornly remained in Africa, killing more than half a million people yearly. Ethiopia had almost 3.8 million malaria infections in 2021 and 8,000 deaths from it.
There are two key reasons.
The malaria parasite found in Africa is the deadliest, and strains have developed resistance to the common medicine chloroquine. The prevalent malaria-spreading mosquitos in Africa almost exclusively bite humans. There was progress against malaria in Africa at the start of the 2000s, but that was halted by Covid, which disrupted basic medicine and caused around 60,000 more deaths.
The world has long promised to get rid of malaria for good. The Global Malaria Eradication Program was established in 1955, before it was abandoned in 1969 because the goal was deemed unachievable. In 2015, world leaders renewed the pledge. In the UN’s global promises known as the Sustainable Development Goals (SDGs), all countries undertook to fix almost every global problem by 2030, including malaria.
Progress has been glacial, meaning the malaria goal will be achieved some 400 years later. This is just one of many spectacular failures of the big UN promises. Politicians promised too much: the global priorities include an impossible 169 promises, which is indistinguishable from having no priorities at all. This year, the world will be at halftime for its 2030 promises, yet it will be nowhere near halfway.
It is time to identify and prioritize the most crucial goals. The Copenhagen Consensus, a think tank, is doing that; together with several Nobel laureates and more than 100 leading economists, we have been working for years to identify where each dollar can do the best.
Our new research on malaria, written by Rima Shretta and Randolph Ngwafor at the University of Oxford, proposes a 10pc point scale-up and use of bednets in the 29 highest-burden countries in Africa alongside insecticide resistance management strategies between now and the end of the UN’s promises.
Ensuring people sleep under an insecticide-treated bednet is one of the most effective ways to prevent malaria. Mosquitoes are blocked by the netting and killed by the insecticide. Bednets each cost less than four dollars, yet result in a dramatic reduction in transmission by ensuring mosquitos die before parasites can mature and spread.
It is important that budgets are not just distributed but actually used correctly, which requires social behaviour change and communications and information sharing. Even allowing for this — and for the higher price tag of responding to resistant strains of malaria — the cost across this decade is about 1.1 billion dollars a year. To put this into context, it is one-third of what the US population spends on lipsticks each year.
This investment would save 30,000 lives this year. By the end of the decade, the number of malaria deaths will be halved, saving 1.3 million lives in total.
Bednets also mean many fewer infections with malaria. The research shows that 242 million fewer people will get sick in 2030, drastically reducing healthcare costs. Reducing the number of sick people means adults can go to work, and children to school. Caregivers are not stretched, which increases productivity at a country level.
Putting all these factors together, every dollar spent on this campaign would yield societal benefits worth 48 dollars — a phenomenal return on investment.
We have allowed malaria to turn into a disease of poverty in Africa. And while we cannot deliver on all the global UN promises, we ought to deliver on the smartest things first. Distributing and using insecticide-treated bednets would cost little but save 1.3 million lives.
The Fault Finder’s Quest to Value Analysis
I sat with a friend over coffee one of the days last week, evaluating the worth of our daily investments. In the midst of our conversation, she called me a ‘fault finder’ which spurred my college memories.
It was a label I had earned from past employers, including the last one where we worked together. But I was not looking for faults in others but assessing the value of investments in time, money, and relationships.
I am not a fault-finder, I told my friend. I am a problem-solver.
Deep down, I knew my ex-employers needed someone to call out their faults and find solutions to their problems and that was exactly what I did. I became a fault-finder, a problem-solver, and above all, a game-changer.
Ahh… it all started with that course with its intimidating title- Work Design. The endless lectures on theories and techniques for improving productivity and safety in the workplace hardly seemed relevant at the time.
But there was a chapter, nearing the end of the semester that caught my attention like no other- Value Analysis. It was a technique for breaking down and scrutinizing every element of a product or service to determine ways to make it more efficient and cost-effective.
I remember sitting in the dusty classroom, infused with a faint smell of chalkboards, as the instructor regaled us with tales of manufacturing processes and supply chain management. Yet, it was that lesson on Value Analysis that stayed with me long after the class ended.
It is funny how memory works. I can hardly recall the hazy smile on the face of a girl I had a crush on but it is the minutiae of Value Analysis that truly stuck with me.
Concepts such as function analysis, value engineering, and value index calculations still play out in my mind years later.
My initial post-college employment was a role within a government-owned construction behemoth. It was a conglomeration of several separate sub-companies, each operating like their own distinct tribes.
Before long, I had gained the undistinguished moniker of the “fault finder.” Regardless, I was staunch in my determination to perform to the utmost of my abilities. The public enterprise was hard-pressed, reeling from years of operation sans a coherent system. Construction, supervision, and payment were dispersed among a variety of departments, yielding utter chaos.
Amidst the mixed economy announcement by the Dergue regime, the initial explication from the World Bank involved restructuring and fragmentation of the enterprise. And there I stood, right in the thick of it all.
My sole focus was the daunting roster of personnel that required management, all with limited resources at my disposal.
Establishing a database for human resources with 10,000 plus employees from several sectors was no small task. But I took the challenge head-on and never lost sight of the saying difficult things take a long time, impossible things a little longer. I proposed a visit to Ethiopian Airlines’ database centre and was warmly welcomed.
The computer system, a marvel of modern ingenuity, was a sight to behold. I remember asking the caterer for its whereabouts and being told it rested in Atlanta, Georgia. This information hit me with such force that I had to take a moment to gather myself.
Undeterred, I rallied a team of young professionals and typists to join me in rewriting and editing our work. We faced resistance from data processing, but I pushed forward with the unwavering inspiration of Sinidu, the tireless and organized personnel record officer.
I reminded myself, drawing on my own experience to fuel my determination.
Our efforts were not enough to keep the government from shutting us down citing our inability to keep an accurate record of our human resources.
I refused to see this setback as a defeat. Instead, I saw it as a foundation for future endeavours, a bedrock of knowledge from which I could launch new assaults upon my ambitions.
My ambitions were too great to be contained by the bounds of my current surroundings, and so I bid farewell to the water enterprise. I set out once more in search of new frontiers to conquer, always keeping the lessons of my past close at hand.
My fellow high-minded colleagues, impressed by my fault-finding humour, bestowed upon me the task of overlooking another company’s insurance program. I saved the company millions of Birr, yet the CEO refused to see the virtue of such savings.
I suggested insurance covers for machinery breakdowns, which would encourage preventive maintenance, but they were never utilized. Thus, millions went down the drain.
In my journey towards finding fault, I have come to realize the importance of intention and purpose in our interactions as humans. This can only be achieved by approaching others with empathy and an open mind, actively listening and honestly speaking. The process of becoming valuable lies in staying true to our values and treating others with the respect they deserve.
As Hemingway once wrote, we spend our whole life stuck in the labyrinth, thinking about how we will escape one day, and how awesome it will be, and imagining that future keeps us going, but we never do it.
The cost of living is a burden that everyone bears, but Hemingway reminds us that the cost of true joy is worth every penny.
With my friend, I vowed to invest in relationships that uplift us and reduce consumption of unnecessary items, thus, living a more fulfilling life. The reassessment of our investments not only prepares us for the current economic situation but also brings us closer to living a life that is meaningful.
The search for beauty, the courage to take risks, the discipline to tell the truth and the capacity for sacrifice come at the cost of being vulnerable, wounded or destroyed. And yet, they are crucial virtues to addressing real-life problems and becoming truly valuable.
For me, the term “value analysis” has become a way of life. It has made me aware of the importance of being something of value in every aspect of my life.
We must take the time to reflect on what truly matters and make choices that align with our values. It is only then that we can become truly valuable.
Ethiopia’s Tumultuous to Liberalise Forex Market Journey Amid IMF Pressure
Last month, Ethiopia hosted a team from the International Monetary Fund (IMF) as they discussed the country’s economic plan and progress. In the eye of the storm was the liberalisation of the exchange rate regime, which some media outlets described as the IMF’s demand for the unification of official foreign and parallel exchange rates. This was purportedly a prerequisite for resuming IMF programmes, which Ethiopia desperately needs.
Five years ago, the exchange rate in the parallel market commanded a 30pc premium; today, that figure has ballooned to a staggering 100pc premium over the official rate. This was in complete contradiction to the authorities’ aims when they initiated the rapid depreciation of the Birr. They had hoped such a move would significantly narrow the parallel market premium and boost export performance. The policy, however, has proved to be a disappointment. Not only has it failed to address exchange rate disparity, but it has also caused many problems.
In an economy beset by high inflation, the rapid depreciation of the Birr has only exacerbated matters. The severe foreign exchange shortages and the fast depreciation have caused the parallel market premium to soar to unprecedented heights. Consequently, the parallel foreign exchange market now operates by its own rules, and the official exchange rate is utterly divorced from the country’s economic reality. The exchange rate regime has become untenable, and attempts to maintain it have only caused further economic distortions.
Forex demand has consistently outstripped supply, necessitating the implementation of “priority list” rules. The unreliable forex supply discourages remittances and exports, fostering rent-seeking and corruption. A select few with privileged access to foreign exchange at the official rates reap excessive profits, often resorting to corrupt practices in the process.
The widening gap between the official and parallel rates has spawned numerous economic distortions, leading many to believe that a significant devaluation of the Birr is inevitable. However, policymakers must carefully evaluate the consequences of previous devaluations and the rapid depreciation of the Birr, and weigh the costs and benefits of such a policy measure. They should also exercise caution and consider complementary policy actions.
The recent rapid depreciation of the Birr has aggravated the inflationary situation, exposed the banking industry to greater foreign exchange rate risks, substantially increased external debts denominated in Birr, and burdened the government with hefty external debt servicing costs in Birr.
Acknowledging the potential negative impacts of devaluation and eventual exchange rate unification is crucial. A significant devaluation could lead to downplaying its consequences to the economy’s peril.
Proponents of exchange rate unification argue that the official exchange rate will likely mirror the parallel market rate, implying minimal inflationary impacts. This argument, however, is founded more on faith than hard evidence. A considerable amount of imports are made through the official exchange rate, and their domestic prices reflect this rate. Petroleum is a prime example. Exchange rate unification would undoubtedly have significant repercussions on the prices of goods and services.
The belief that unifying exchange rates would cause all foreign exchange inflows to funnel through the official channel is misguided. Many parallel market participants believe a substantial premium should persist even after unification. In this scenario, those who supply foreign exchange to the parallel market may adopt a wait-and-see approach to gauge demand. This expectation can be dispelled only by availing sufficient foreign exchange through official channels – a difficult feat, even with IMF support.
Devaluation would not only cause inflation; but, it also has serious ramifications for banks and the government’s external debts. Banks would be exposed to increased foreign exchange risk, and those with substantial foreign exchange commitments would suffer significant losses. In recent years, many commercial banks have incurred losses from foreign exchange dealings and transactions, an issue that has not garnered the attention it warrants.
A significant devaluation could inflate the government’s external debt stock held in Birr, making principal payments and servicing costs increasingly burdensome on the federal budget.
A diverse approach is necessary to complement devaluation through exchange rate unification. The government should secure enough foreign exchange reserve to satisfy official channel demands for a reasonable period, pursue tight fiscal policies to reduce or maintain current expenditures, tighten monetary policy to curb inflation, enhance export performance (particularly in manufacturing) to earn more foreign currency and secure external debt restructuring to reduce annual external debt repayments.
Notwithstanding these, macroeconomic policymakers must also devise a “Plan B” to address potential challenges such as sharply surging inflation, rapid parallel market exchange rate depreciation, substantial widening of the budgetary deficit, and increased forex risks for the banking industry.
In addition to exchange rate unification, the nature of Ethiopia’s exchange rate regime post-unification warrants serious deliberation. A functional exchange rate regime is essential. Suppose policymakers decide to introduce a flexible exchange rate system. In that case, they must ensure it is supported by appropriate policy instruments to manage foreign exchange risks and pursue a credible monetary policy.
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