A new directive by the National Bank of Ethiopia (NBE) prohibits account holders from making payment in foreign currency for import items other than those identified as a priority by the Bank last year.
The priority items include pharmaceuticals products, agricultural inputs, machinery, baby formula and educational materials, among others.
According to industry insiders, this is expected to impact businesses that used to import items such as vehicles and clothes using the forex that they have deposited in the Diaspora account.
The directive also forces Diaspora account holders to convert 30 percent of their deposit into birr at the prevailing buying exchange rate.
The directive, enacted to govern establishment and operation of foreign currency account, came into effect as of March 8, 2021. It also bans making a deposit of less than USD 3000 except for residents living in the Middle East and neighboring countries who are also expected to present an entry visa.
While it aims to raise the investment contribution of Ethiopian-born foreign nationals and Ethiopians residing abroad, the directive was drafted to incentivize the opening of forex account and ensure it will not be used against its purpose, according to the NBE.
“Although the directive is likely to weaken the black market, it may create a gap in supply of items which are not stated under the priority list. This is especially true for vehicles and clothes that are highly dependent on this particular account as a source of forex,” said Nebiyou, International Banking Manager at Bank of Abyssinia.
“Considering importers are major customers using the Diaspora account, the prohibition may also reduce their appetite to use it,” he further noted.
Only non-resident Ethiopians and foreign national of Ethiopian origin are eligible to open a diaspora account, according to the directive.To gain the status of a non-resident, locals are required to present evidence showing they have been living or working abroad for more than one year. Otherwise, they must own a business outside Ethiopia for at least one year. The minimum amount required for an initial deposit to open a forex account is USD100 and it is USD5000 for fixed time deposits.
Any bank that violates any of the provisions stated under the new directive will be subjected to a penalty of USD5,000, according to the new directive, which also repealed the previous directive enacted in 2019.
Thus, the new directive will only be applicable to Diaspora accounts. Another directive enacted last year allowed locals open a forex account for only saving purposes.
“Locals are still allowed to open a forex saving account. The new directive has nothing to do with this,” Nebiyou remarked.
Ever since the beginning of the current financial year, NBE has been taking different measures aimed at boosting forex inflow through formal channel. Recently, it has introduced a directive that prohibits making transactions more than five times a week in a bid to weaken the parallel market.