Saturday, July 20, 2024
BusinessCentral bank nods to long-awaited currency convertibility assurance  

Central bank nods to long-awaited currency convertibility assurance  

The National Bank of Ethiopia (NBE) is committed to offering the much-anticipated guarantee of converting local currency funds to hard currencies for foreign investments deemed “strategic.”

In its latest directive issued a week ago, the NBE allowed the opening and operation of offshore accounts for strategic foreign direct investment projects, mainly mining and Public-Private Partnership (PPP) projects with large capital investments.

The directive also gives a guarantee for mining and PPP projects working in the energy sector to convert their local currency earnings to foreign currency to repay loans as well as repatriate dividends.

So far, investors of any level had not been given a guarantee from the government to convert currencies when repatriating profits, as they were forced to wait in the banking system for accessing foreign currency, according to Fikadu Digafe, vice governor and chief economist at NBE.

Even though the new directive gives economically impactful projects the currency conversion guarantee “at the prevailing official rate,” project owners can apply for it only after “exhausting all means to purchase foreign exchange from banks,” according to the directive’s rules.

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“The projects should be capital intensive and have a significant impact on the country’s economy,” Fikadu told The Reporter. He said reaching the profit repatriation stage for such strategic projects will take at least five or six years.

With completion of the Grand Ethiopian Renaissance Dam (GERD) on the horizon, as well as improvements in import substitution and agriculture, he is optimistic the economy and foreign currency regime will improve in a few years to avail hard currencies for investors.

“If they won’t get the currency from the economy by then, the last resort will be that we will give them priority in foreign currency allocation. This is the main purpose of the conversion guarantee,” he said.

Investors desiring to take part in PPP have long been asking the government for such assurance, Fikadu confirmed.

Through officials from the Ministry of Finance, the investors have long been pushing NBE to come up with this law, which would attract foreign investment and create confidence for investors.

Abebe Gebrehiwot, head of the PPP unit at the Ministry, commented on his social media platform that allowing the repatriation of revenue through currency conversion was one of the main issues foreign investors in Ethiopia were raising.

“Foreign currency has been one of the major bankability requirements,” Abebe wrote on his LinkedIn page.

NBE’s directive makes certain strategic foreign direct investment projects eligible to open an off-shore account to “deposit proceeds from their equity and loan financing sources.”

Among them are the PPP projects in the power generation and infrastructure sectors with large investment capitals, mining projects with considerable export earning capacity, and other projects with significant size, job creation, and several other variables.

The debt-to-equity ratio for such projects is capped at 80 percent debt and 20 percent equity, unlike the 60/40 percent ratio allowed for other investments.

From their offshore accounts, the projects are only allowed to make payments for external debt service, insurance and other warranty claims, capital or investment expenses, as well as maintenance and related operational expenses.

Strategic investors with offshore accounts are obliged to report their financial statements to the National Bank of Ethiopia (NBE) on a quarterly basis.

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