A recent directive is roiling the coffee industry, following the Central Bank's requirement that exporters convert half of their foreign exchange earnings into local currency within 30 days. Exporters say it is squeezing them at a precarious time.

"The deadline is too unrealistic," said Abdu Hussien, export manager at Adulina Coffee Export Plc, a major player in the coffee market.

Incorporated 13 years ago under Mahabub Mustefa, Adulina exports coffee and imports raw materials like chemicals, aluminium, and rebars to supply factories. Last fiscal year, the company was among the top 10 coffee exporters, shipping 5,667tns of coffee to markets in Europe and the U.S., earning nearly 28.9 million dollars. Exporters like Adulina rely on importing goods to offset losses from the volatile coffee export market.

"The import business is important to us," Abdu told Fortune.

However, a directive issued by the National Bank of Ethiopia (NBE) threatens this balance.

"The time is simply not enough," said Tewodros Yilak, co-founder and CEO of BNT Coffee & Industry Plc, a major exporter and bottler of the "Dega" water brand. The retention policy also affects businesses relying on importing critical materials, compounding problems for companies like BNT.

Central Bank officials argue that the retention policy stabilises the Birr, after they liberalised the foreign exchange regime. Since July, Birr has depreciated by over 100pc after it was floated in the exchange market, a monetary policy shift tied to broader economic reforms agreed with the International Monetary Fund (IMF). These reforms target to close the gap between the official and parallel exchange markets and boost export competitiveness. The depreciation adds another layer of difficulty for exporters converting foreign earnings into a weakening Birr.

Many exporters have turned to imports to offset export losses during times of volatile prices. Despite new market opportunities in the Middle East and East Asia, the sector remains under pressure due to high domestic coffee prices and competition from countries like Brazil. However, Ethiopia's coffee export earnings reached a historical record of 1.43 billion dollars last fiscal year. Yet, the industry struggles with a mismatch between international and domestic prices.

According to Gizat Worqu, general manager of the Ethiopian Coffee Association (ECA), a powerful industry lobby group, there is a substantial disparity between domestic prices and international buying offers. A recent surge in domestic prices has caught the industry off guard, raising concerns about selling at a loss.

Nonetheless, Central Bank officials believe their measure to keep the retention period no longer than one month could enhance economic competitiveness, unlock export potential, and attract foreign direct investment (FDI).

"There needs to be enough foreign exchange to fuel import," said Vice Governor Fikadu Digafe, stating the importance of supporting import activities and enhancing foreign exchange liquidity in commercial banks.

The Vice Governor noted that most importers are not exporters, arguing for broader economic considerations.

Exporters argue that the tight timeline does not reflect business realities. Nearly 700 active coffee exporters operate, many struggling under the new policy. Industry leaders have been discussing the directive with Central Bank officials, hoping for revisions. Gizat sounded optimistic about the ongoing talks.

"We're exploring different options," he told Fortune.

One option on the table is to extend the retention period to 90 days. It is a voice BNT managers have echoed the Association, requesting an extension.

The Ethiopian Coffee & Tea Authority (ECTA), a federal regulatory agency in charge of the sector, acknowledges the limitations of its influence over national policies.

"We plan on bringing the issue up to the Central Bank soon," said Adugna Debela, its director general.

Central Bank Governor Mamo Mihretu recognises exporters' concerns and says the NBE is working to resolve the issue.

"We're looking into it," he told Fortune, asserting that macroeconomic reform has led to a considerable increase in foreign currency reserves, up to 80pc. "There is no forex liquidity problem in commercial banks."

Tadesse Hatiya, president of Sidama Bank, concur with the official policy of one-month retention, arguing that it has been effective in boosting foreign exchange reserves and ensuring customers have access to forex. He observed the monetary policy reforms have enabled banks to increase foreign exchange reserves by nearly 60pc, resulting in an improved stockpile. Yet he acknowledged that liquidity shortages in Birr limited banks' ability to offer essential loans to businesses.

However, President Taye Atskeselassie, in his inaugural parliamentary address, announced that banks currently hold 2.5 trillion Br in deposits. However, the liquidity shortages have resurfaced due to economic stress. Banks urge business owners to import goods rather than convert foreign currencies into Birr.

While bankers express optimism about the reforms, challenges remain, particularly in ensuring cash liquidity. For Teferi Mekonnen, president of the Oromia Bank, strict fiscal and monetary policies implemented to control inflation have constrained local currency in commercial banks, making them reluctant to extend loans. He argued that the retention limit has further tightened liquidity, as large depreciation has depleted local currency reserves during conversions.