Ethiopian Review

By Groum Abate | Capital Ethiopia

The Ethiopian Economy is one of the least monetised in the world with over 85 per cent of the population having little access to banking and financial services. From this perspective it might appear that Ethiopia has little to fear from the current global crisis.
Prime Minister Meles Zenawi also expects that the crunch will not affect the economy drastically, reasoning that the country’s financial structure is not as liberalised as those of affected countries and the economy is not as closely intertwined to the Western economies facing a crisis.
But some experts say that there are three areas in which the global financial crisis might affect Ethiopia – reduced aid, investment and remittance.
At a disscussion organized by the Ethiopian Academy of Financial Studies (EAFS) on Thursday April 30, three papers were presented to an audience that consisted of the financial heavyweights of the country on the impact of the global financial crisis on Ethiopian economy, an assesment on the legal framework for microfinance institutions in Ethiopia and the need for payment systems modernisation vis a vis the existing payment systems in Ethiopia.
The global economic crisis has become a very debatable agenda in every discussion forum. At the beginning some had assumed that the global economic crisis would have little impact on Ethiopia’s economy. This assumption was made by considering the limited economic integration Ethiopia has with the rest of the world. However, what we are witnessing is the severe impact the global economic crisis is having at every door. The dearth of foreign currency is one of the symptoms of the crisis. The real estate business in Ethiopia is ailing.
The discussion that took over half of the day and that focused on the paper presented by Yemisirach Aklilu, about the impact of the financial crunch, entertained many ideas from the participants of the discussion.
Yemisirach who works as a senior researcher at the central bank said that during the past five years exported in Ethiopia have grown significantly at an annual average of 27.2 per cent. But, currently the unit value of coffee and oil seeds have fallen by 6.3 per cent, each during the first quarter of 2008/09.
Apart from this, if the unit price of these itemes as at end of December 2008 is compared to the same period in 2007, the annual decline for coffee and oil seeds reach 16.1 and 7.1 per cent.
According to the paper, the unit value of gold has declined by 75.9 per cent as at December 2008, compared with its unit value as at December 2007.
The paper further stressed that the commodity price boom further escalated the inflationary pressures on several African countries.
Alemseged Assefa, vice governor of the National Bank of Ethiopia said that the country need to see other policy options to move out of the current economic crisis sound and safe.
Advisor to the NBE governor, Dr. Sentayehu Woldemichael, the financial crunch that is seriously affecting the international financial market has brought no significant impact on Ethiopia’s economic growth.
The country’s economy is primarily dependent on the agriculture sector, Dr. Sentayehu said, adding that the country’s economy has not so far been affected despite the slight decline in the price of its agriculture commodities in the international market.
Dr. Sentayehu further said that the country is benefiting from the situation as it is importing various commodities, including petroleum, with a lower price.
The shortage of foreign currency witnessed in the country is not linked with the international financial crunch, but a result of the rising demand by the government and the private sector, he added.
Dr. Gebrehiwoet Ageba from the Addis Ababa University said that the current foreign currency shortage could be tackled by introducing the franco valuta system where someone could import without opening a Letter of Credit (LC).
Gebrehiwot further said that the Government should further scale up the selling of bonds in different public enterprises and try to lease land in foreign currency to the Diaspora.
Dr. Eyob Tesfaye head of Public Financial Institutions Supervisory Agency said that the impact is much more than presented and added that the nation should do more to tackle the crisis.
The three research papers focused on the financial sector were presented during the course of the workshop that brought experts from banks, insurance companies and economists together.
Ethiopia heavily relies on the outside world to finance many of its development programs. The funds come in a form of aid or investment from countries hard hit by the crisis. Therefore, the crisis is likely to reduce the flow of aid and investment as countries strive to solve the domestic financial crisis.