The National Bank of Ethiopia (NBE) has ordered a ban on issuing letters of credit for the import of close to 40 selected goods. These include all fuel-consuming automobiles, alcoholic drinks, and cosmetics products, among many others. The decision is seen by few as a proactive move to encourage local manufacturing and exports, while others have taken it as a reactive measure in response to the nation’s dire shortage of forex reserves. Some go as far as claiming the move is an official admission of the beginning of the end for the Ethiopian economy. Regardless of which side is right, the impact of the prohibition on consumers has been rough. Prices for the embargoed commodities are only climbing as importers scramble to find new, and more expensive, ways to ship them into the country. EBR’s Eden Teshome looks into the government’s decision and what it means for the consumer.
A Ministry of Finance circular addressed to regulators at the National Bank of Ethiopia (NBE) on October 14, 2022, revealed that federal policymakers had opted to scrap access to letters of credit (LCs) for the import of no less than 38 items. The list of “luxury commodities” is varied and includes everything from automobiles and furniture to packaged foods and various kinds of alcoholic beverages. The move came as the country’s chronic forex shortage problem continued to show no signs of improvement, with government authorities deciding it was best to spend what little forex was available on crucial commodities such as medications, agricultural inputs, capital goods, and raw materials for domestic manufacturing.
During an address to Parliament a month after the circular was sent out, Prime Minister Abiy Ahmed (Ph.D.) told lawmakers that the country’s import bill had ballooned to USD 18 billion spent on shipping in 6,000 kinds of goods. Less than 40 of these were on the no-credit list, although, according to the Prime Minister, these goods accounted for USD one billion of last year’s import bill – equivalent to government spending on chemical fertilizers.
Finance Minister Ahmed Shide and his deputies have thought it best to block forex access for the import of food items (with the exception of infant formula), ceramics, kitchenware, sweets, meat, cigarettes, fruit juice, canned fruit, potato chips, tomato paste, alcoholic beverages, water and soft drinks. The large number of importers engaged in the import, wholesale, and retail of these commodities have been offered up as collateral damage in hopes of mitigating a forex shortage that has been haunting the economy for years now.
The business community is reportedly lobbying government officials and politicians through the Ethiopian Chamber of Commerce & Sectoral Associations for a reconsideration of the banned food items listed. Import of these items, for which LCs have already approved and imports are already in process, are exempt from the prohibition.
According to a forecast by the International Monetary Fund (IMF) for the year 2023, Ethiopia’s hard currency reserve will only allow the country to import critical items such as fuel, fertilizer, and medicines. Ethiopia’s imports for 2021 totaled USD 18.4 billion, up 2.03 Pct from the year before, and exports totaled USD 8.45 billion, showing an increase of 10.11 Pct from 2020.
The goal of the latest ban seems to aim at limiting the use of hard currency for the import of crucial products. However, the trade of some of the items on the list, such as human hair, appears to be going strong.
Habeni International Trading PLC is a player in the beauty product market with a focus on the import and trade of human hair, Its main office is located near the headquarters of the Ethiopian Revenues & Customs Authority in Bole District. An importer associated with the company told EBR on condition of anonymity that Habeni International still has a way to import human hair and avail it to the local market despite the prohibition.
“I can’t exactly tell you how we acquired it because it’s a company secret, but the new way is more expensive and difficult than the old way,” the importer told EBR. “Even though we can’t say the new circular law hasn’t had an impact on our business, it hasn’t stopped us from importing human hair.”
The importer observes a circular is hardly enough to curb the flow of these “luxury” goods. Instead, the high demand coupled with more drawn-out and expensive import methods will likely place extra burden on consumers already buckling under the pressure of high inflation.
Although the terms of the circular were implemented nearly three months ago, there has been little observable impact on the markets involving some of the items on the list. Many of these commodities are still finding their way to shelves in supermarkets, cosmetics stores, and other retail centers.
NIB Candy Factory PLC is a local chocolate factory that was established by Teshome Jobira in 2002. Since it was founded with 10 employees over two decades ago, the factory has grown to claim a prominent place in the Ethiopian confectionery market.
Operating with 400 employees, NIB Candy’s production lines feature more than 20 kinds of sweets, and a large number of wholesalers and retailers benefit from the value chain created by the candy factory. It sits on a 15,000 square meter plot in Burayu, a small town located in the Oromia region, not far from the capital.
Imported goods and inputs still line the factory’s shelves, and new ones are still being delivered, according to Eyoel Teferi, a marketing manager at NIB Candy Factory.
“There is not much change in the market as a result of the new ban,” Eyoel told EBR. “Due to the fasting season, sales have actually decreased. We had hoped that the current prohibition order would benefit our business, but so far, nothing has changed.”
Two factors must be considered when evaluating the success of the new order, according to Dr. Atlaw Alemu, an economics lecturer at Addis Ababa University. The first of which is whether it will really be implemented. The lack of follow through on policies is hardly a new phenomenon in Ethiopia. The second question is whether the prohibition will actually have any impact even if it is actually implemented.
“Even in other nations, if the necessity arises occasionally, policies of this nature can be implemented, but in this country, we typically have a horrible habit of not implementing them properly so that’s usually the issue with it not being effective,” Dr. Atlaw told EBR.
There are slight hopes in other industries and lines of business, of course. A source from the National Alcohol & Liquor Factory said they have hopes that demand for their new product – Black Deer whiskey – will rise after some time.
“We anticipate that once imported whiskey begins to disappear from shelves, demand [for Black Deer] will go up. We foresee significant market demand in the coming months,” the source told EBR.
The Factory’s products are growing in popularity in the market. Some customers are even imitating these alcoholic drinks or blending them with international alcoholic beverages – a practice which they believe is encouraged by the ban of LCs for the import of alcoholic beverages such as whiskey.
Genet Abebe is a local cosmetics retailer with a store near Kazanchis. She has significantly raised the prices of items like deodorant, lipstick, face wash and others. A stick of deodorant that used to cost ETB 400 two months ago now costs ETB 950. Price increases on various perfumes have reached around ETB 1,000 or more.
“It is not because of new arrivals,” Genet told EBR. “I and other retailers around here changed the prices following our anticipation that the flow of products might slow down if not halt leading to shortages of certain brands, which inevitably push the prices up.”
”This is exactly the problem,” says Dr. Atlaw. “When you adopt policies without a full understanding of the consequences, the burden only rests on the consumer. Businesses always have a way around bans.” EBR
11th Year • Jan 2023 • No. 114