Ethiopia is considering allowing foreign exporters established in the country to utilize export revenues for imports, a move requested particularly by meat exporters to offset losses from exporting business, incurred by high domestic inflation.
In a major policy shift, the government is aiming to reverse a longtime ban on foreign businesses importing goods into the country.
A joint task force comprised of officials from the Ministry of Trade, Industry and the Ethiopian Investment Commission (EIC) along with other stakeholders, is currently conducting research that will likely result in allowing foreign investors in Ethiopia to engage in import operations other than own inputs.
“Research is underway to allow FDI exporters to do import business. This discussion has been ongoing for a while, but we determined further study was needed before making any changes,” stated Temesgen Tilahun, deputy commissioner at the EIC. “It will be allowed for strategically important sectors.”
Temesgen says the study will be presented to policymakers. “It is a multi-stakeholder initiative and different institutions are represented in the team.”
If approved, the move would enable foreign companies established in Ethiopia to utilize forex retention brought in through exports to import items while also contributing to the government’s efforts to address supply constraints and inflation issues facing the country.
Tilahun Abay, an advisor to the Ministry of Industry, elaborated on the government’s considerations.
“In our three-year medium-term plan, the government prioritized improving supply and properly addressing inflation. Allowing foreign companies in Ethiopia to engage in importing is one potential tool,” he told The Reporter.
Currently, the law prohibits FDIs from conducting import operations in Ethiopia. “So far, the law prohibits FDIs to do import business in Ethiopia. Now there is consideration, though a final decision has not been made yet,” Tilahun added.
The initiative comes after requests by existing FDI exporters seeking to compensate for losses in their export businesses. Allana Group Ethiopia, a leading processed meat exporter, is among those lobbying for import rights.
In a letter to the Ethiopian Livestock Development Institute last August, Allana outlined two options. The first was allowing the company to utilize foreign exchange reserves from exports for importing.
The second proposal was to establish a level playing field by banning all exporters from compensating losses through imports. “If need be, the government should take 100 percent of the foreign currency from exporters and create a level field for all,” the letter stated.
Allana requested the option as “justification” to stay viable.
“We incur a USD 2,500 loss for every ton of meat we export because the price of livestock in the domestic market is up to three times higher than the international meat price,” Kelifa Hussein, CEO of Allana Group Ethiopia, told The Reporter.
Domestic inflation, according to Kelifa, is forcing exporters to export at a loss. “Even though the central bank recently increased our forex retention rate from 20 to 40 percent, we still can’t use those funds for import business.”
The CEO says that local exporters are compensating for their export losses by importing items and profiting up to 200 percent from those imports. “But as foreign exporters, we aren’t allowed to import, so we have no way to offset our losses.”
“If the government does not accept our request, we’ll have to stop all export operations,” the CEO explained. He says the Ministry of Agriculture has accepted the request.
“It’s a real problem, so our request has been forwarded to the PM’s macroeconomic team. We’re just waiting on a final decision now—our issue does not give us time,” added Hussein.
Tilahun acknowledged the government aims to gradually open imports and retail to foreign players.
“It’s already planned to allow strategic commodity imports by foreign suppliers as a stepping stone towards implementing the African Continental Free Trade Agreement,” he said.
However, Tilahun fears fully liberalizing imports could undermine local producers.
“Therefore, it will be step-by-step—first allowing FDI exporters based in Ethiopia to import using their self-generated forex. Then, gradually, the retail business will also be opened as well.”