Sync Principles, Practices in Allocation of Foreign Currency!

Ethiopia’s foreign currency problem is a constant in an otherwise inconsistent socio-economic and political conditions of the past three years. Although various administrations devised different mechanisms to alleviate the foreign currency problem, a lasting solution still eludes. Therefore, the measures taken have proved to be short term remedies that only put a stop to further escalations of the problem. Under such conditions of ever-present foreign currency problem, managing the meager foreign currency resources at hand should be of utmost priority. Sector and policy based prioritization of activities to allocate foreign currency to should be pursued actively. It is common knowledge that petroleum and pharmaceuticals imports are said to be prioritized in allocating foreign currency because of the social and economic impacts the products could muster.

As stated in our main interview, however, actors in the pharmaceuticals industry complain that these claims are groundless as they normally wait for over a year to access foreign currency. Major actors are shouting foul on the allocation of foreign currency as there is a big gap between the practice and claims of prioritizing pharmaceuticals in accessing foreign currency. Therefore, the priority areas should be identified clearly with strict adherence to these priorities.

In addition to the prioritization of sectors, policy issues should also be used in prioritizing allocation of foreign currency. EBR strongly recommends prioritizing import substitution efforts rather than import of finished products. Inputs for import substitution provide job opportunity for Ethiopians and can potentially raise foreign currency as the products can be exported. On the other hand, import of finished products equate to consumption of highly scarce resources.

Data, however, show that banks allocate an overwhelming section of their foreign currency on the import of finished products than promoting manufacturing and import substitution. The data for 11 months of import in the metal sub-sector indicate that USD1.2 billion worth of finished products were imported while the figure for inputs in manufacturing stood only at USD471.6 million.

The decisions to allocate foreign currency seem to be based on factors other than sector and policy priority. However, the management of as scarce a resource as foreign currency should be taken seriously by commercial banks and the central bank. As stated in our story on the cement conundrum, cement factories asked for foreign currency to maintain their huge machines. However, they were allowed to access USD85 million eight months after they asked for the funds. During that time, the condition of numerous machines deteriorates and they have halted operation. The spare parts problem is stated as one of the main problems for the current national cement conundrum. The government could only avail the foreign currency they needed to purchase the spare parts once the machines in the major producers of cement in the country halted operation. Therefore, it is only when the issue goes out of hand and the crisis assumes national proportions that the required foreign currency is allocated to a key sector in the country’s development drive.

Corruption plays a major part in the allocation of foreign currency from banks. Those who make the decision receive a fixed amount of ETB for every USD they authorize for businesses. Despite widespread knowledge of such practices, no substantive measure has been taken by commercial banks and the central bank. The National Bank of Ethiopia and the government seem to allow corrupt practices that squander scarce foreign currency resources while sectors and businesses that should be prioritized come to a grinding halt after being denied access.

Despite vowing to address the rampant corruption under the previous Tigray People’s Liberation Front led Ethiopian People’s Revolutionary Democratic Front, Abiy Ahmed’s (PhD) administration seems to have a hard time tackling corruption as recent developments indicate. It needs to buckle up and manage foreign currency allocation based on principles rather than corrupt relations.

9th Year  August 30 – September 30 2020  No. 90

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