Oct 15 , 2022
By Molla Mitiku, ( Fortune Staff Writer. )

Federal authorities have banned the importation of goods in an unprecedented move not seen in three decades. However, they can only save a little over 600 million dollars on a three-year average, constituting a mere five percent of the total imports bill.

A State Minister for Finance, Semereta Sewasew, issued an edict last week listing several items under 38 categories not to be allowed for imports. The State Minister justified the move for the need to allocate foreign currency to essential food items, medicines and inputs used to add value by domestic manufacturers.

The Ministry requested central bank officials to follow up on the measure Semereta attributed to a “decision made by the macroeconomic committee” chaired by Prime Minister Abiy Ahmed (PhD). Subsequently, the central bank instructed commercial bank on Friday not to open letters of credit to import goods from liquors, cigarettes, and perfumes to soaps, packed foods and drinks, home and office furniture, vehicles and bicycles.

The ban has been issued indefinitely.

International remittance grew to over five billion dollars, and export revenues exceed four billion dollars at an all-time high. While the value of exports going up and the import bill declined last year by 2.5 billion dollars from 13.5 billion dollars in 2018, forex inflow from foreign direct investment and official loans and grants plunged. Ethiopia received only 290 million dollars in loans from bilateral and multilateral creditors this year, a significant drop from the 4.7 billion dollars it had received four years ago.

However, the authorities were forced to take such unusual measures in response to the pressure on the balance of payments. Ethiopia’s foreign exchange reserve is at an all-time low, sufficient to cover imports for 0.7 months (three weeks), according to data released by the IMF last week. The Fund project the reserve will drop to 0.6 months next year, indicating that Ethiopia has lower than one billion dollars in its reserves.

Economic pundits see the measure as a knee-jerk response which is too little to change the bigger issue.

“It’s symbolic,” said a macroeconomist who had worked for the federal government for several years.

The data appear to vindicate him. The three-year average annual expenditure for the goods State Minister listed reaches 600 million dollars against 12.6 billion dollars in imports bills. Ethiopia spent 37.5 billion dollars to pay for its imports in the three years since 2018; all the goods banned from import were worth 1.8 billion dollars, around five percent.

The reaction to this measure is mixed-from consumers’ anxiety that it will fuel inflation to importers’ hope the ban will be lifted in the shortest time. Experts advise monetary policy response and the government to reinforce import substitution instead.

Biniam Endale is a general manager of Wiminar Trading, a perfumes importer. He understands the rationale for the ban as an appropriate response to stabilise the forex crisis. He believes importers are part of Ethiopia’s society and should understand the economic challenges.

“I hope it will serve for a short period,” he told Fortune. “But, if it takes longer, we may find ways to focus our business on exporting local products.”

Biniam’s voice of sympathy to the officials and understanding of this action is shared by another importer, Alemayehu Mebratu.

Alemayehu manages 4Cousins Trading Plc, which imports foodstuff.

“The government has done nothing wrong in banning these items and denying LCs,” he told Fortune. “I believe the government will find other means. It could be including some of these items in  Franco Valuta or connecting importers with the diaspora.”

Consumers have fears of soaring prices further building up from the absence of these goods on the market.

Martha Nega, a resident of Addis Abeba in her late 40s, is worried.

“I heard about it yesterday night,” she told Fortune, waiting for the light rail on Saturday morning on the Stadium-Qality line. “Soap is one of our major daily use. If there is scarcity, that will lead to the rise of price, which creates an additional burden to the people.”

Eyerusalem Teshome was buying chocolates, fish and tissue papers at the Fresh Corner Supermarket on Saturday afternoon. These are some of the items, including packed tuna and sardines, the authorities banned from import.

“Prices are rising from time to time,” she told Fortune. “There will be a shortage of supply that could further aggravate them.”

She is not alone in voicing concern over the prospect of a shortage of goods in the market. Assefa Kassa, shopping packed foods in the same supermarket, would want to see the government stabilising the market, allowing the influx of commodities.

“If this is not done, there will be a burden on the people,” said Assefa. “Commodity shortage could further escalate prices.”

Gebregizabher Alemayohu (PhD) lived in Warsaw, Poland, for about 10 years, where he studied economics at the Central School of Planning & Statistics. After returning home, he served Central Planning for 15 years before joining the private sector.

“Earning Foreign exchange is challenging for countries like Ethiopia,” he told Fortune. “The current economic situation forces the government to ban importing those items. The ban may play its stated role if it is accompanied by import substitution.”

Gebregizabher warns that failing to substitute the goods domestically could burden society more.

Other experts fear that a blanket ban can only encourage contraband trade, exacerbating the forex crisis. They urge government officials to look for sustainable ways to stabilise the forex market by allowing a competitive forex market.

“The source of the problem is monetary policy,” said the macroeconomist who requested anonymity. “A viable start is to let the Birr float in the forex market.”

PUBLISHED ON Oct 15,2022 [ VOL 23 , NO 1172]

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