Coping with forex crunch, reinforcing
export
ToumelisanGebrewold
The shelves of one local storesin the vicinity of African Union,Sarbet area of Addis Ababa, a few minutes’ drive next to Mexico square, is crammed with locally sourced products as the store could not import supplies due to forex crunch.
Helen and Tesfaye, living in the area for eight years with their two children, are feeling the recent hike in the price of goods.They usually go to the local groceries and supermarkets in Sarbet area in the weekends. Last week, the family visitedthe same stores tobuy their monthly consumables including pasta, macaroni and soft drinks. However, the price of every item has soared in unpredictable manner and they feel the pinch of unaffordable prices.
Helen said they are scouring the shelves for cheaper prices but none of the items are affordable, even though available in a fewer quantity. According to her, the consumables were relatively cheap in the past three years. However, the current inflation has plagued all the supplies in the stores and they have to shell out all their fortune on packed and fresh edibles.
At one of the supermarkets, packaged whole-grain pasta from Italy, which used to sell for 37 birr is now selling for whooping 63 birr. Prices for all other items have risen unspeakably and it could be said that life in Addis Ababa has become unbearable for those families that have limited disposable income.
According to Tesfaye, over the past two months, food items were either vanishing regularly or their prices have been getting more expensive. The family’s monthly expenditure for consumables goods has now risen to 5,000 birr from 3,000 birr in the previous.
Moreover, the grocery shelves at the supermarkets are hit by supply shortages. These stores have faced chronic supply crunch and the price tag attached to every item is expensive. Customers are complaining of the scarcity that made them miss their favorite supplies which they used to pick at ease.“We have been hit by a major supply scarcity in the past few months,” said one anonymous salesperson at a supermarket near Sarbet.
Evidently, the target for export revenues during the last nine months was 3.66 billion dollars, with barely half the target met. Of this, agricultural commodities earned 1.58 billion dollars, with over 332 million dollars and almost 110 million dollars generated from the manufacturing and mining sectors, respectively.
The effect of weak exports and the associated shortages of foreign currencies are not limited to non-basic goods. The problem is also affecting other importers of basic goods such as butane gas, or liquid petroleum, used as energy source for both commercial and private uses.This dearth of supply for imported goods has to do with the foreign currency crisis the country is currently experiencing (for instance, importers are forced to wait up to a year to open letters of credit to fulfill transactions).
In line with this, the latest consumer price index from the Central Statistical Agency (CSA) reported that the headline inflation for May stands at 13.7 perecent similar to the previous month, despite harsh economic situations in the country.
The report indicated that headline inflation, an index of the cost of living, had stagnated last month. It differs from the figure in the previous month’s report that prices for food items have declined. Unlike the previous months, food inflation has fallen by 1.2 percentage points while inflation of non-food items hasgone up by 1.4 percent.
Likewise, a rise in prices of clothing, footwear, corrugated iron sheets, cement, household goods, furnishings and healthcare is the primary reason pushing non-food inflation rates up, according CSA’s report.In recent months, the economy of the country has been in distress as the foreign currency scarcity exacerbated (exports have not been yielding the expected revenues fueling the shortages of forex to cover imports).
This macroeconomic failure, associated with lack of foreign currency reserves, has created unbridgeable imbalance between nation’s need for import and export. According to the International Monetary Fund (IMF), these shortages have to do with the stagnant national income over the past five to ten years and unheedingly growing expenditures by the government.
Similarly, the performance report of the Second Growth & Transformation Plan (GTP II), prepared under the auspices National Planning Commission, has capitalized on the seriousness of export failure and need to alleviate it (the report hinted that one of the key components of attracting foreign currency in the GTP II is enhancing exports, which has failed far too short of established goals).
A number of factors haveled to the drop of foreign currency reserves including stagnant remittances that stood below zeropercent and rising import bill that outweighs the amount of income being generated by export.
This adverse macroeconomic situation is further compounded by the 15percent devaluation of birr against a basket of major currencies last October. This measure was taken by the National Bank of Ethiopia (NBE) to attract investment and FDI and assure price competitiveness of exported goods on the global market.
In addition, it was said that federal budget in coming year would stand at 346.9 billion Br, an increase of around 7.5 percent compared to last fiscal year’s budget. Hence, seeing the ever soaring expense of the country amid dwindling revenue, economists are advising that the country has to apply austeritymeasures including decreasing its expenditure on non-basic items and thrifty use of resources.
In the contrary, some say the current account deficit of Ethiopia is not a huge problem. There is a 50 / 50chance that it knocks Ethiopia for quite a loop in the next five years. That is still consistent with a longer-term optimism. However, Ethiopia’s debt to GDP ratio stood at 56 percent aggravated by governments unabated expenditure on infrastructure (it was also said the government was advised to decelerate some expenditures on infrastructures some years before; itignored this proposal as hindrance to smooth flow of export and development).
Currently, eyed to alleviate the drought of hard currency, the government has decided to privatize some public enterprises and sell their shares. Accordingly, Ethiopian Airlines, Ethio telecom and Ethiopian electric and power corporation, among others, (which were earlier protected from privatization by the government boasting of “ on the grave of EPRDF`) are now on the fore front bidding list to sell their share and involve private funders.
Currently, poor export performance, dwindling remittance and other inevitable predicaments in the economy have forced the government to sell its cocooned corporations. The declaration for privatization has entertained a mixture of ideas; some are supporting privatization as the best way topropel the ailing economy while others opposed it as shrewd machination to neo-colonization of the economy.
Some are expressing their fear that corruptors may come under the banner of public-private partnership (may be, enabling corruptorsto reemerge and control the economy while they are losing the ground in the newly reforming Ethiopia).
Individuals are opening discussions on how the government will privatize its cash cows.However, some said they will be gravely disappointed to see Ethiopian Air lines being transferred to foreigners or corrupted individuals who have been allegedly siphoning off public funds and amassing riches illegally in foreign banks.
They said the government should be cautious not to be trapped by economic conspiracy brewed from abroad and possible influence that may come from corruptors under the banner of joint venture and partnership (corruptors colluding with foreign banks and companies). Hence, it has to take time and discuss with the public for possible remedies and solutions while privatizing institutions.
Others are advising that, particularly, Ethiopian Air line is a flag carrier and its assets are more than any merit that may be derived from finance and investment. Hence, the government has to make an all out effort to save it or open sell of its shares to the greater public at home , like the Grand Ethiopian Renaissance Dam(GERD) and limiting the amount of shares per head (for instance, 2,000 USD or 5000 USD). This popular participation may satisfy the greater public as an owners and beneficiaries and prevent ultimate hand wringing and migration of resources.
Whatever the case, it has been clear that the sustainability of the Ethiopian economic growth has been questionable as it is facing risks in light of continued foreign exchange shortages and limited room for external borrowing( hence, large external imbalances, rising debt and weak competitiveness may constrain development of manufacturing and creation of jobs).
Undoubtedly, this calls for a shift toward a more export-led model where the private sector can play a greater role in economic growth, export diversification and employment generation. In addition, the country has to foster the growth of dynamic services sector needed for manufacturing and agro-processing enrichment (removing trade barriers, reforming regulations and moving toward integrating its services markets).
Town’s people including Helen and Tesfaye hope that things will improve soon and availability of consumables will be replenished in the various stores. The current problem is not as worse as the problems the country has resolved in the past. They believe the current shortage will be a big lesson to the future and help satisfy markets sustainably.