Life Matters | May 23,2021
Exporters have been barreling through from obstacle to disaster over the past decade, not unlike most other sectors. Things have only gotten worse over the last two years, starting from the economic impacts of the COVID-19 pandemic. Now, the headache is coming from the National Bank of Ethiopia (NBE), which recently ordered exporters to surrender four-fifths of all the foreign currency they earn. An overwhelming share goes into the central bank's coffers at 70pc, amounting to 400 million dollars over the past two months. Another 10pc is retained by the commercial banks where the exporters have accounts. Close to 10pc of the forex goes to cover freight costs.
Exporters have misgivings, albeit muted, over the amendment to retention rules, the third in about a year. The consequence, some of them told Fortune, would be to discourage the export business, which is critical to the health of the balance of payments. Moreover, it restricts foreign currency cash flow needed to import essential inputs for production. This is especially the case for exporters in input-intensive industries, such as horticulture and textiles, unable to substitute with domestic supplies due to quality issues. The two sectors earn foreign currency that covers 17pc of the 3.6 billion dollars generated from exports last year. Despite exporters' compunctions, the retention rules are here to stay as the federal government struggles to cover costs for importing essential items such as medicine, fuel, fertiliser and wheat. It also has the burden to settle external debt instalments. Some experts suggest that exporters should be allowed to retain all the hard-earned foreign currency they bring in, benefitting the sector and growing the overall pie through incentivisation. Others advise that exporters consider importing inputs through letters of credit (LC), in addition to the 20pc foreign currency they are allowed to retain. Unfortunately, the queues to obtain permits for letters of credit are too long and could take months or even years before they are approved.
Exporters will have to fend for themselves in the meantime or cease operations. Industry operators warn that they are a few months away from closing up shop.
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PUBLISHED ON
Mar 05,2022 [ VOL
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