supermarkets fear shutdown
The central bank of Ethiopia expects saving close to 100 million dollar per year, from the ban imposed on selected import items.
In a circular written on October 14, 2022, the Ministry of Finance ordered the National Bank of Ethiopia (NBE) to stop approving Letter of Credit (LC) for 38 selected import items. As the result, commercial banks cannot provide foreign currency for importers who request LC for the selected 38 items, for indefinite period of time. The decision came after the macro-economic team conducted studies.
Complete build up (CBU) automobiles, motorcycles, three wheels are among the items banned from import. The others are processed food, beverages, artificial jewelry and flowers, make-up preparations, whisky, postcards, fruit juices, chocolate, pork meat, household and office furniture, vas, hats, bottled water, fruits, carpets, hand and wall watches, human and artificial hair, perfumes, fireworks, bags, umbrella, sea foods, cigarettes and others are among the banned items. Electric vehicles are exempted from the prohibition.
Import of these items, for which LC is already approved and their import is in process, cannot be affected by the prohibition.
The ministry stated the prohibitions are made to channel the available foreign currency to most needed items like medicine and basic commodities.
“Roughly we expect to save around 100 million dollar by stopping importing the selected items, which are not critical items. The amount will be channeled to import of critical items especially industrial inputs,” said Fikadu Digafe, chief economist and vice governor of NBE.
The selected 38 items are rather considered luxury items. Due to the chronic foreign currency shortage the economy is facing, allocating the scarce foreign currency for import of such non-critical items is deemed waste. The ban is also expected to improve the appetite for domestic products.
“Vehicles that are used for working activities are excluded from the ban. The prohibition is rather imposed on vehicles imported by individuals. This will also incentivize local car assemblers. For instance, banks have been allocating foreign currency for import of beer, while there is sufficient production of beer locally. Such practices are unfair and it has been costing the economy,” said Fikadu.
Government also expects the new measurement will reduce the flow of foreign currency to the parallel market. This is mainly because the foreign currency used to import the items is usually sourced from the black market.
However, on the other end, the businesses of importers, wholesalers, supermarkets, and retailers who were engaged in the business of the 38 items, will be negatively affected.
Especially since supermarkets in Addis Ababa sell imported items and most of the items are included in the ban, supermarkets are in fear of facing shutdowns.
Last week, the central bank has also embarked on major crackdown over black market actors, freezing bank accounts of over 665 informal hawala providers.
The foreign currency reserve of the country stood at 3.2 billion as of mid-July, covering only 1.7 months of import bill. The foreign currency shortage is exacerbated especially after price of major import commodities like fuel, fertilizer, wheat and metal spiked in the global market, a domino effect of the war in Ukraine.
However, compared to the country’s official import bill, which surpassed 18 billion dollar this year, the 100 million dollar saving is a drop on the ocean. Yet, the implication of the measurement is incentivizing for local producers. It will also result in a major shift in Ethiopia’s consumer behavior.