Two-thirds of small and medium businesses have no plans for new hires in the next year, according to a survey report by First Consult. The consulting firm surveyed 312 companies across four cities and revealed they are exhibiting "cautious optimism" where few plan to leave their sectors, and 39.2pc view the future with uncertainty due to looming economic woes.

Businesses within an economic climate characterised by a chronic foreign exchange shortage and high inflation rate are forced to turn to the parallel market, where exchange rates are significantly higher. The report also highlights the burden of inflation on consumers, with double-digit price increases forcing households to adopt coping mechanisms like buying lower-quality food items.

In the "Microeconomic Bluebook,"  the lack of foreign currency is identified as the most significant obstacle for businesses exacerbated by conflict and stagnant exports. An import-reliant manufacturing subset of the Ethiopian economy faced formidable challenges in accessing raw materials. Rent fees were cited as the second most important factor of production for 44pc of the surveyed firms after raw materials, while only a third of the businesses found success in accessing loans during the reporting period.

Michael Addisu, technical director of First Consult, relayed the growing difficulty newlyweds face due to sharp inflationary pressures in reflecting on the burden of the economic challenges from the consumer perspective.

"Some are reaching out to expat relatives," he said.

The Microeconomic Bluebook indicated consumers' diverse coping strategies for the double-digit inflation rate. Most respondents revealed they bought lower-quality food items, while very few opted to purchase in bulk. Prices for onions increased by as much as 200pc year on year in cities like Hawssa city in Sidama Regional State, while Addis Abeba was impacted by a 150pc increase in Teff prices. Adama (Nazreth) in Oromia Regional State and Dire Dewa City Administration were the two other cities reviewed in the report, which also showed significant inflationary pressures.

Despite the current difficulties, there are glimmers of hope. The report coincides with Ethiopia's implementation of its Homegrown Economic Reform Agenda 2.0 (HGER), which prioritises private sector participation. Experts at the report's launch panel discussion expressed optimism about the potential of these reforms, particularly when coupled with increased access to technology.

Omar Bageresh, a third-generation coffee exporter, sees the current economic reforms as a positive turning point for the country. He heads B-Agro Coffee Exports and believes that increased liberalization measures have the potential to significantly transform Ethiopia's economy. He acknowledges the historical challenges of doing business in Ethiopia but expresses optimism that strong private sector engagement coupled with the ongoing policy reforms can propel the economy to new heights.

"There are radical reforms taking place," he said.

Paul Walter, director of development at the British Embassy, said technology represents a leapfrogging opportunity for Ethiopia's youth with emerging technologies like artificial intelligence and the expansion of 5G networks. He suggested a growing commitment by the government to open up the economy to more private-sector participation and receptivity to technology, which he expects to empower businesses.

"There are several reasons to be optimistic," he said.

He also referred to the possibility of debt relief and credit facilities under the International Monetary Fund (IMF) program as important tools for accelerating the implementation of the HGER and bringing about necessary reforms.

"Knowing when to intervene and when to back off will be critical for the government," Paul told Fortune.

A depleted foreign currency reserve stock crippled by global price increases, stagnating exports, and poor Foreign Direct Investment performance, in addition to the two-year conflict, was also noted as an important challenge faced by firms in the report.

Economist and board member of the Ethiopian Security Exchange (ESX) Tewodros Meknonen (PhD) enquired how firms included in the survey coped with forex rates in the parallel foreign exchange market. Tewodros pointed out that significant foreign exchange exists in the country through the parallel market, as evidenced by the high volume of imports, albeit at much higher rates.

"Their response would inform discussions on exchange rate regime policy," he said.

Another notable finding of the Bluebook was the number of employees decreasing by 0.32pc during the reporting period.

Nebil Kellow, managing director of First Consult, expects the success of the government's reforms to depend on thorough implementation strategies that are simultaneously adaptable to emergent phenomena.

He underscored the need to include more micro, small and medium enterprises into the financial fold in a marked shift from the banking sector's historic catering to collateral-backed large businesses. Nebil considers the willingness to adapt, listen, and learn down to officials at the Wereda and Kebelle levels to be instrumental in ultimately enabling a successful transition to a more liberal economy.

"We have to build a system that works for the underdog," he told Fortune.

PUBLISHED ON Apr 06,2024 [ VOL 25 , NO 1249]

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