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Motivating export, jolting up businesses
Gebre-Michael Asgedom
Domestic businesses are fluttering to keep their heads above water as many are suffering from financial and credit crunch. Among others, iron bar importers and construction giants are complaining about the financial crunch and a shortage of hard currency. As a result, of the shortage, many businesses are claiming that their customers have significantly declined due to lack of supply, particularly since the devaluation.
The same holds true for an iron bar whole seller shop owner, Yared Solomon. He said things have gotten tough from the beginning of this Ethiopian fiscal year. He remembered he opened his shop five years ago, engaging in the import and sale of iron bar.
Years before, he said, the business was thriving promisingly, but now it is declining day after day due to a lack of sufficient hard currency to import from abroad. Now he is turning down the request of customers for more supplies. Like Yared, particularly, wholesalers engaged in the supply of construction materials are also expressing disappoint because of lack of hard currency to import supplies from abroad.
Nonetheless, he said, his expectations remained unmet even after over five years of his engagement in the business of the wholesale. From the frying pan into the fire, in the last six months the economy started to witness major changes with the introduction of devaluation and complimentary directives issued to mitigate devaluation-driven-inflationary-pressure.
Secret in public, in a bid to enhance export and attract more foreign currency, last October 2017, Ethiopia had a green lighted devaluation of Birr by 15 percent against a basket of major foreign currencies in an intention to encourage export; National Bank of Ethiopia (NBE) complimented the devaluation with countermeasures such as a 16 percent outstanding credit growth cap on all commercial banks for the current fiscal year. It was part of a series of monetary policy measures taken to ward off inflation.
Economists have stated that target of the country to remedy shortage of dollar through devaluation is short-term relief to what currently ails the economy. It is a palliative measure and it cannot solve the problem in a long-term basis. This kind of measure could not be taken as a reliable solution to the future prospection of businesses.
It was, nonetheless, a fateful decision to businesses such as owned by Yared. Soon after these changes, his business slowed down and the influx of customers to his store located near Tekle-Haymanot area declined remarkably. He now faces pressure from his landlords to pay rent; salary to a staff; and outstanding bills for transport and logistics offices he gets services from while there are no speedy releases of money from the bank.“I’m struggling to sustain my business,” he said.
Yared’s experience is in sharp contrast to very optimistic reports released by international finance institutions and risk analysis companies. Their projections stated that Ethiopia is one of the best performing economies in Africa, if not the world. Despite this very fact, it is not easy to find surveys and indexes that measure business confidence in Ethiopia.
Ethiopia`s GDP had been recorded to be in the double digits, uninterrupted for close to 15 years until now, and unseen in the nation’s economic history. Likewise, those international financial juggernauts had not been reluctant to speak about it either; whatsoever the case, we are hearing same chorus of robust economic growth thriving amid various challenges.
Their report by and large witnessed that Ethiopia’s economy has been expanding for over a decade. Real GDP grew by eight folds since 2008, reaching 827.6 billion Br in last fiscal year. Recently, IMF had strengthened the forecast that Ethiopia’s economy would continue its progress by 8.6 percent, showing a bit regression from the earlier double digit.
Whatsoever, this rate of growth may be still cogent reason for Ethiopia and Ethiopians to be ecstatic, particularly, if they could compare it with various other countries below Sahara that have been fettered by bleak economic outlook below three percent for decades. Accordingly, Ethiopia will work miracles to emancipate its people from rock bottom poverty in the near future, provided it could manage to sustain the current development close to 10 percent, let alone the previous.
Earlier IMF had forecast Ethiopia’s growth to be below six percent. However, now, it come around to concede that growth is to be over eight percent. This amount by itself is great and it evidenced the economic growth of the country is likely to be sustainable; it can grow further as we can see from the various projections of the international finance institutions.
The achievements of Ethiopia seem uncanny, as witnessed by those institutions, though characterized by high unemployment rate, massive external debt, widening trade deficit and lack of access to finance, coupled with severe forex crunch. Particularly, now Ethiopia is hard hit by shortage of hard currency and double-digit inflation (nonetheless, reports of World Bank and the IMF forecast positive growth prospect).
Currently, it is common to encounter business owners and leaders bitterly complaining of a myriad of problems they face in doing business in Ethiopia. For instance, exacerbated by financial problems, corruption and outage of electricity are all the major bottle necks being mentioned by investors and business persons at home.
In line with this, the World Bank, one of the rare organizations regularly gauging the ease of doing business in 191 countries in the world, found out that close to 40pc of small businesses shut down due to lack of access to finance. Regardless of size, almost everyone in the private sector is complaining about having little access, if any, to foreign currency, pressure put on the economy due to the wide balance of payment gap.
In the case of Ethiopia, we could sense the idea that, even though there are no tangible surveys, many domestic businesses are victims of lack of access to finance. For instance, many businesses started by the youth were not able to enjoy loans from the rotating fund approved for the youth by the parliament.
In addition, some economists alleged that measures taken by policymakers are not sufficient to mitigate the forex crunch. Currently, they focus only on narrowing the demand curve of the country while the country has an insatiable need to import and export, industrialization and construction (and curbing this demand is not a feasible solution for a country that is bustling to extricate itself from abominable poverty through stunning development).
So far, what policymakers are doing is incompatible with the huge development need of the country, according to them. They said curtailing the demand side is not the best solution amid shrinking performance of export and waning remittances that once used to boom. Seeing these challenges severely impinging on businesses, they stressed, Ethiopia has to explore numerous ways to shore up businesses and boost its hard currency generation capacity.
Undeniably, until now, the reforms already put in place by the government have propelled development, drive up export earnings and keep inflation at bay. However, bygone is bygone. The reforms and policies that were once workable may not be fit to the current domestic and global situation.
Nevertheless, the outlook for the next five years is bright. Based on its global forecast, the IMF projected that Ethiopian GDP per capita would continue its expansion through 2022; Ethiopia’s gains are particularly heartening. Until now, the country’s economy has been blooming resiliently amid challenges and Ethiopia has realized appreciable economic development.
Hence, policies and reforms have to be flexible to strengthen elastic economic trend fit to the development need of the country. These measures should also be far-reaching to address financial problems and to increase productivity in the areas of export, manufacturing and agriculture. Particularly, the effort has to be supported by speedy situation analysis; tailored-measures have to be put in place to motivate export, jolt up businesses and address the foreign currency shortage in a lasting manner.
Businesses like Yared have until now worked by selling out all their commodities available in stock. Now, the available one is drawn to time and it has to be replenished by fresh import being facilitated by hard currency supply of the banks.
Now hopes are great that shortage of foreign currency may be a temporary problem encroaching on their business. But the government has to promptly seek comprehensive solutions to support businesses before they are destroyed and employees become layoffs.
