Officials cite ‘war economy’ to defend exporters’ forex forfeit
Exporters from various industries slammed government officials this week, demanding an end to the 20/80 forex retention policy that requires them to surrender up to 80 percent of their foreign currency earnings. Officials justified the policy as a necessary measure “due to the war and its consequences.”
Representatives of various industries united to criticize the policy requiring exporters to retain just 20 percent of foreign currency proceeds while the government takes 70 percent and banks take the rest.
At a National Public-Private Dialogue forum this week, exporters from multiple sectors confronted government officials, including ministers from the Ministry of Trade & Regional Integration, and Industry.
Gathering at the Skylight Hotel, the frustrated exporters warned that businesses would grind to a halt unless changes were made to the forex policy. They bluntly told the ministers that export firms would be forced to cease operations unless the government revised the rule.
Exporters in the meat processing, grain, coffee, sesame, and other commodity sectors were among the leading voices challenging the Ministries of Trade, Industry, Agriculture, and Science and Technology.
Kelifa Hussien, Frigorifico Boran Foods operations director, says 20 percent is never enough.
“We lose up to 40 percent in the export business due to domestic commodity prices exceeding international ones. We offset export losses through importing, but forex supply is limited due to the tight retention rate,” Kelifa said.
Oilseed and pulse exporters also constantly clashed with officials over the year, mainly at the Trade Ministry, and demanded a revision to the forex retention rule.
Management of the Ethiopian Pulses, Oilseeds, and Spices Processors-Exporters Association, appealed for a revision of the policy.
“We only export because it is mandatory. We export for the little foreign currency to trickle down to import business,” said Sisay Asmare, the Association’s president. “This policy must change to incentivize exporters. It is also contributing to inflation.”
Another exporter of sesame, who wished to remain anonymous, says exporting businesses rely solely on foreign currency earnings. The exporter claims there won’t be any left to export if the government does not revise the policy.
“Nobody exports for passion. It’s only for foreign currency,” he said. “So if the government wants more exports, incentives like relaxing the retention rule are crucial.”
Export earnings are declining, reflecting exporters’ loss of motivation. Coffee export revenue dropped by nearly USD 80 million, from USD 1.41 billion last year to USD 1.33 billion this year. Other sectors also saw revenue declines.
Responding to industry concerns, Teshale Belehu, State Minister for Trade and Regional Integration, noted Ethiopia’s economy suffers from the war, placing heavy pressure on the government.
“You worry about foreign currency, but what kind of economy are you in?” he asked industry representatives. “Is it not a wartime economy? The war consumed a huge amount of foreign currency.”
Teshale explained Ethiopia’s main foreign currency sources—remittances, loans, and grants—were impacted by the two-year war that ended with the Pretoria agreement last November.
“While we’re in this situation, the government has back-breaking loan burdens. It’s impossible to allow exporters full forex earnings amid this crisis,” he said.
Industry State Minister Tarekegn Bululta says Ethiopia’s forex retention policy is a “temporary one,” caused by domestic issues and international pressures, and that the government will revise the policy.
“It is just a temporary problem,” Tarekegn told The Reporter. “Our international relations and previous situation are improving.”
Tarekegn’s remarks sparked hope among exporters that they may soon gain access to a larger percentage of their forex earnings.