1 April 2018

Ethiopia: Amidst Forex Crunch, State Bank Releases U.S.$300 Million

The bank released the sum to 1,650 importers operating in priority sectors

With the country in the midst of a severe forex crisis, the Commercial Bank of Ethiopia (CBE) has released an aggregate sum of nearly 300 million dollars to customers that have applied for letters of credit (LC).

The bank released the sum to 1,650 importers operating in priority sectors, including manufacturing and pharmaceuticals in March 2018. The amount is threefold lower than the last time such sums were made available precisely a years ago.

This comes on the backdrop of a forex crisis that led to the shortage of supplies even in priority sectors, such as medicine. Currency reserves at the end of the last fiscal year stood at 3.2 billion dollars, covering 1.8 months of imports.

The importers are disgruntled over the amount of currency that has been made available, pointing out its adverse implications for their businesses.

"We have been waiting for ages, only to get such an insufficient amount of hard currency," a procurement manager of a manufacturing company that declined to be named told Fortune.

His company had applied for letters of credit worth over two million dollars. Only 115,000 dollars has been made available for him.

"We have been using other channels to satisfy out foreign currency needs," the procurement manager said.

Another importer, Tsegaye Gebreysus, who runs a pharmacy, says that available hard currency will only last him two or three more months.

"We will have our backs against the wall if the bank fails to release currency consistently," Tsegaye added.

This sum by the most capitalised and profitable state-enterprise is only 10pc to 20pc of the amount the importers requested, according to sources close to the case.

"The Bank is doing its best to cover the massive demand," Belihu Takele, communications manager of CBE, said. "But at the moment, this is the maximum capacity of the Bank, with the hope of distributing a reasonable amount in the coming months."

Recently, the National Bank of Ethiopia (NBE) had instructed CBE, together with other commercial banks, to facilitate Heineken Breweries with 40 million euro in letters of credit. The banks were also directed last year to sell exchange worth 15 million dollars for Ethiopian Shipping Logistics Services Enterprise (ESLSE).

The Central Bank has a system of forex allocation that puts sectors deemed critical for the well-being of the nation. These include the import of fuel, medicine products and fertilisers.

The timing of this disbursement worries this macroeconomist though.

"The market and the currency rate is changed during the delay so it would affect the businesses," commented the macroeconomist.

The nation devalued its currency by 15pc against a basket of major currencies last October in a bid to bolster exports, and reduce the trade deficit that currently stands at close to 13 billion dollars.

"The forex regime should be revised," the expert said, adding that all the nation could do in the short term is try to fill the domestic demand through loans from international creditors."

Last year, CBE, which has 13.3 million account holders and over a thousand branches across the country, collected 4.5 billion dollars from remittances and export.

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