The Ethiopian government announced that basic goods importers would be allowed to use Franco-Valuta to ease the surging cost of living in the country.
In a statement released by the Prime Ministers’ Office, the Macroeconomic Team is said to have decided on the imports of edible oil, wheat, sugar, children’s milk and rice without the need to get a Letter of Credit, cash against documents or telex transfer.
The imports, it was reasoned, would help bridge the gap between the supply and demand of basic goods. The gap is blamed for the ever-increasing inflation, especially on food items.
According to the Central Statistical Agency (CSA), the general inflation in the first three months of the year 2021 stood at 20.4, 20.3 and 20.4, respectively. Food inflation in these three months period was recoded at 23.2, 23.0 and 22.6, respectively. The general moving average inflation in 2020 was 16.2, while food inflation and non-food inflation were recorded at 19.2 and 12.8, respectively.
In a March consumer price index statement, the Agency indicated that the country’s overall inflation rate (annual change based on 12 months moving average) rose by 20.2 percent in March 2021, as compared to the same time last year. Similarly, the country’s food and non-food inflation increased by 22.5 percent in March 2021, compared to the same time last year.
The major contributors to the rising inflation for food items in the country are price surges in cereals, vegetables, pulses, edible oil, spices (pepper), fruits, vegetables, and coffee. Hence, the decision to allow Franco-Valuta will ease this inflationary burden by creating a balance between supply and demand of food items. The PMO statement also indicated that such imports should be above USD 250,000, and shall be authorized by the National Bank of Ethiopia (NBE) after review of the source of the money.
Franco-Valuta basis of importation was introduced in Ethiopia during the imperial period of Haile-Selassie I. Franco-Valuta privilege is a permission to import goods on which foreign exchange is not payable following the strict payment procedures implemented by banks and regulated by the NBE, explains Simons & Simons’ website, a London based legal service entity. However, the privilege of Franco-Valuta was given to manufacturers who import goods and equipment for factories and such imports are usually duty free.
The NBE’s first quarter bulletin for the year 2021 states that total Franco-Valuta import stood at USD 1.04 billion accounting for 29.8 percent of the total import value. This value slowed by 8.2 percent.
“Import payments for consumer goods surged 29.7 percent over last year in the same quarter due to a 47.9 percent growth in import payments for non-durable goods, despite 26.4 percent durable goods import. As a result, the share of consumer goods in total imports hiked to 42.9 percent from 30.7 percent during the review quarter,” the bulletin states.
The report also highlights that the total merchandise import stood at USD 3.5 billion during the first quarter of 2021, registering a 7.1 percent year-on-year decline due to lower import values of capital goods, fuel, semi-finished goods, raw materials and miscellaneous goods.