Ethiopian Review

Addis Ababa — After the birr suddenly fell to its lowest ever rate on Saturday against the dollar, losing nearly 10 percent to exchange at 12.445, mixed feelings have been observed both in the export and the import sector. The National Bank of Ethiopia (NBE) devalued the birr in the face of dwindling foreign reserves. Last week a dollar was worth 11.33 birr in the inter-bank exchange market.

Some exporters approached by The Reporter said that the measure taken by the NBE to devalue the local currency was a welcome measure for it to be more competitive in international market.

Due to high prices in the local market, the export sector was discouraged not to be competitive to supply the international market with satisfactory amount of agricultural products, the exporters said.

Exporters engaged in coffee export said that the devaluation helps them to reduce their cost, coffee farmers will get their benefits and it will encourage the sub-sector to send more coffee to the outside world.

“We believe that the exchange rate should be monitored and the birr must be devaluated because our export price would be more competitive to gain more foreign exchange from export proceeds,” said a coffee exporter who declined to be named. The country could not benefit from the world market due to inflated cost in local market, he said, but now the devaluation will provide them an opportunity to exploit the market with tangible prices in order to get the badly needed foreign currency.

Coffee exporters have been in difficulties with the government with regard to stockpiled coffee in warehouses. The government said at that time some coffee exporters were selling export coffee in local market instead of selling abroad. Their move was considered as sabotaging the economy for their personal gains. Though the exporters declined to admit they were not happy to export the coffee in high prices, they were complaining the proceeds from coffee exports were not encouraging them to do the business.

With regard to the import, though many importers are still lined up to get foreign currency due to shortages in banks, they are not happy with the devaluation. They fear that the fragile situation of the local consumers may be complicated due to the devaluation.

Food and beverage exporters said that the inflation and shortage of foreign currency have affected their activity in the past several months. When the birr depreciates and the foreign currency appreciated the local consumer could not buy the imported goods because of weak purchasing power, they added.

Yetnayet Ayalew, importer of foodstuffs said that apart from the consumers’ declining trend to buy imported goods, the devaluation will have a negative impact on local manufacturing firms, which are using almost all raw materials, including fuel and lubricants. According to her, the devaluation is not only paralyzing the import sector but the whole economy as well. “At this point the whole economy would be affected by the impacts of the devaluation because we were witnessing how the consumer was struggling since the inflation aggressively hit the country,” she said.

Abduletif Abubeker, importer of auto spare parts, said that because of the dried foreign currency reserve he was not importing spare parts for more than seven months. The devaluation will be a blow to him because the market can not respond as usual because of inflated prices. “I was observing for a long time that our clients are turning their back to genuine parts and searching for modifies in a bid to minimize their cost. Therefore, when this devaluation effectively shows its backfire no one came here to buy parts with exaggerated prices.”

An expert in NBE said that the national bank has a duty to stabilize the monetary policy and the measure taken was to be considered as a step to encourage the export sector. The export sector is the government’s priority for the sustainability of the economic development of the nation.

However, some bankers were suspicious of the measure because a sudden measure may convey a devastating factor in the economy. With a view of saving the export sector the economy should not be affected by unforeseen hazards. Due to the devaluation there will be up to 20 percent price hike in commodities, they feared. They argued that devaluation means reducing the purchasing power of the local currency which is vastly used by citizens.

The foreign exchange shortage is mainly due to a reduction in coffee exports, from which more than 60 percent of the country’s total foreign exchange revenue is generated. Ethiopia’s hard currency reserve stood at USD 800 million last month, against a target of more than one billion dollars. However, last week Prime Minister Meles Zenawi said that currently the reserve stands at $1.5 billion. Official figures show that Ethiopia exported 171,000 tonnes of coffee, almost 15 percent of the world production, in 2007-2008, and earned more than $500 million.

This year it is expected to be as low as slightly over $300 million due to a slump in demand as a result of the global economic slowdown.

- By Melaku Demissie | Ethiopian Reporter