(1) Possible causes of hyper inflation:
- Demand and supply imbalance due to war and inefficient economy
- Decrease in productivity due to hyper corruption ( any request by the business community/individual business people are indefinitely held by the civil servants until they are paid), war and instability in the different parts of the country such as Tigray, Amhara and Oromia. Closure of Tigrayans owned businesses, power disruptions, disruptions on cement production and distribution by the involvement of non-value adding parasitic middlemen in the name of benefiting locals etc.
- Legal or Illegal export of Ethiopian products to neighboring countries with out earning hard currency or undervalued price ( Our neighbors like Eritrea, Djibouti , Somaliland, Somalia and Dubai could import Ethiopian products( legally or illegally) and re-export it to other countries to generate hard currency, this brings inflation with out generating hard currency/ undervalued earning for Ethiopia)
- Increase in the supply of paper money ( this could done by the government to cover short term war related costs or illegal printing of the money with out the knowledge of the government). We have been hearing that the Eritrean government or their agents have been involved on the illegal printing and distribution of the Ethiopian Birr.
- Global inflation due to Covid19 related demand/supply disruptions, fuel price increase, and currently the war in Ukraine.
(2) Possible reasons for shortage of hard currency:
- Decrease in production of export products due to the ongoing war, instability, deep corruption, inefficient government and economy, wrong land policy that limits access to land by investors and decrease productivity of land etc.
- USA and European Union ( EU) sanction on Ethiopia ( ban on AGOA, limitation from getting grant and loans from World Bank, IMF, EU loans and grants )
- Sharp decrease in foreign direct investment (FDI) due to the ongoing war, instabilities and political uncertainties
- Legal or illegal export of Ethiopian products to neighboring countries with out earning hard currency or earning undervalued price ( Eritrea, Djibouti , Somaliland, Somalia and Dubai are a suspect on this ). It looks undervaluation of Ethiopian export prices ( specially those exports to Dubai is decreasing the hard currency earning for the country, while increasing inflation due to increase in non-value or limited value adding demand ). Ethiopians exporters are responsible for this problem but Eritrean government agents may have been also involved on this.
- Diversion of hard currency generated by the diaspora due to the black ( parallel) currency market driven by the increase gap between Ethiopian Banks official exchange rate and parallel market exchange rate ( currently it is more than 30%). It has been observed that , the Eritrean government and their agents have been controlling the illegal Ethiopia related global currency exchange business and the hard currency collected from the diaspora is not going to Ethiopia. One wonders how the Eritrean government agents are getting the constant supply of the equivalent birr to sustain the continuous need for Birr. That raises the valid question, is Eritrea or its agents involved in a continues illegal printing and distribution of Birr, may be in coordination with corrupted Ethiopian officials?
- Import of war related hard ware consumes huge amount of hard currency with out bringing economic benefit( in short term) for the country.
- Global economic trends also affect the export hard currency earning but last three years trends show increasing in price on Ethiopian agriculture export commodity products
(3) Conclusions and recommendations
- It is understood that the Ethiopian government has a "financial/economy intelligence" unit that monitors and knows very well the illegal activates that are being committed against the economic sector of the country such as by exporters, Eritrean government agents operating on the parallel market in collusion to local banks, any illegally printed and distributed Birr, illegal exports , legal exports with undervalued prices etc. The governments may have to look what actions have been taken based on the findings of the intelligence unit. We also hear that Ethiopian agricultural commodities imported to Eritrea are cheaper in Eritrea than in Ethiopia, and if it is true , it calls for further investigation and action.
- Alarmingly deepening corruption at the tax authorities, electric power providers, investment units including investment land providers and all other civil service providing government organizations is destroying the economy by making businesses unattractive/ unprofitable , bureaucratic long delays( unless piad),increasing costs etc and calls for urgent short term and strategic actions.
- With regard to decreasing the hard currency diversion from the Ethiopia diaspora, the Ethiopian government as a short term fix could issue credit notes for each transaction for the difference in exchange rate between the official bank rate and the parallel market. The credit note could be used to buy fixed asset in Ethiopia such as house. For example, if I send USD 1000 through the Banks I get Birr 51,000 and if I send same amount of USD 1000 through the parallel market, I get Birr 70000. The government has to issue me a credit note 70000-51,000= Birr 19000, that I could use toward a payment for land or housing from the government as an incentive of sending the hard currency directly to the coffers of the government. In the long term the exchange market may have to be liberalized( opening legally operating currency exchange shops) which automatically and significantly reduces the gap between the dynamically adjusted market based exchange rate and the parallel rate ( if their is going to be any).
Inaction by the government assuming Ethiopians will send money through banks for "patriotic reason" for a problem that the government has created by its own policy ( fixing the exchange rate , out of market trends) is not realistic and is preventing Ethiopia from earning huge amount of hard currency per year, that could have helped the government needs.
- It is also obvious that the government has to bring out the country from war and conflict and stabilize it with out further delay. Urgent opening of business owned by Tigrayans also helps the country and the owners and employees affected by the blockage. Collective punishment is a jungle rule and is counter productive and it has to be immediately stopped.
- From spiritual perspective killing and starving of innocent people/ citizens for a political or a military gain brings curse and judgment for the country and the government that affects the destiny of the country. The Ethiopian government has to take actions to that effect by allowing unfettered aid access to Tigray and other regions and, avoiding killing and arrest of innocent people. Abiy needs to do a soul search on this area and avoid inhumane actions and collective punishment with out separating the culprit from the innocent .
Re: Why is Ethiopia facing hyper inflation and short of hard currency?
Axumezana wrote: ↑26 Apr 2022, 05:47(1) Possible causes of hyper inflation:
- Demand and supply imbalance due to war and inefficient economy
- Decrease in productivity due to hyper corruption ( any request by the business community/individual business people are indefinitely held by the civil servants until they are paid), war and instability in the different parts of the country such as Tigray, Amhara and Oromia. Closure of Tigrayans owned businesses, power disruptions, disruptions on cement production and distribution by the involvement of non-value adding parasitic middlemen in the name of benefiting locals etc.
- Legal or Illegal export of Ethiopian products to neighboring countries with out earning hard currency or undervalued price ( Our neighbors like Eritrea, Djibouti , Somaliland, Somalia and Dubai could import Ethiopian products( legally or illegally) and re-export it to other countries to generate hard currency, this brings inflation with out generating hard currency/ undervalued earning for Ethiopia)
- Increase in the supply of paper money ( this could done by the government to cover short term war related costs or illegal printing of the money with out the knowledge of the government). We have been hearing that the Eritrean government or their agents have been involved on the illegal printing and distribution of the Ethiopian Birr.
- Global inflation due to Covid19 related demand/supply disruptions, fuel price increase, and currently the war in Ukraine.
(2) Possible reasons for shortage of hard currency:
- Decrease in production of export products due to the ongoing war, instability, deep corruption, inefficient government and economy, wrong land policy that limits access to land by investors and decrease productivity of land etc.
- USA and European Union ( EU) sanction on Ethiopia ( ban on AGOA, limitation from getting grant and loans from World Bank, IMF, EU loans and grants )
- Sharp decrease in foreign direct investment (FDI) due to the ongoing war, instabilities and political uncertainties
- Legal or illegal export of Ethiopian products to neighboring countries with out earning hard currency or earning undervalued price ( Eritrea, Djibouti , Somaliland, Somalia and Dubai are a suspect on this ). It looks undervaluation of Ethiopian export prices ( specially those exports to Dubai is decreasing the hard currency earning for the country, while increasing inflation due to increase in non-value or limited value adding demand ). Ethiopians exporters are responsible for this problem but Eritrean government agents may have been also involved on this.
- Diversion of hard currency generated by the diaspora due to the black ( parallel) currency market driven by the increase gap between Ethiopian Banks official exchange rate and parallel market exchange rate ( currently it is more than 30%). It has been observed that , the Eritrean government and their agents have been controlling the illegal Ethiopia related global currency exchange business and the hard currency collected from the diaspora is not going to Ethiopia. One wonders how the Eritrean government agents are getting the constant supply of the equivalent birr to sustain the continuous need for Birr. That raises the valid question, is Eritrea or its agents involved in a continues illegal printing and distribution of Birr, may be in coordination with corrupted Ethiopian officials?
- Import of war related hard ware consumes huge amount of hard currency with out bringing economic benefit( in short term) for the country.
- Global economic trends also affect the export hard currency earning but last three years trends show increasing in price on Ethiopian agriculture export commodity products
(3) Conclusions and recommendations
- It is understood that the Ethiopian government has a "financial/economy intelligence" unit that monitors and knows very well the illegal activates that are being committed against the economic sector of the country such as by exporters, Eritrean government agents operating on the parallel market in collusion to local banks, any illegally printed and distributed Birr, illegal exports , legal exports with undervalued prices etc. The governments may have to look what actions have been taken based on the findings of the intelligence unit. We also hear that Ethiopian agricultural commodities imported to Eritrea are cheaper in Eritrea than in Ethiopia, and if it is true , it calls for further investigation and action.
- Alarmingly deepening corruption at the tax authorities, electric power providers, investment units including investment land providers and all other civil service providing government organizations is destroying the economy by making businesses unattractive/ unprofitable , bureaucratic long delays( unless piad),increasing costs etc and calls for urgent short term and strategic actions.
- With regard to decreasing the hard currency diversion from the Ethiopia diaspora, the Ethiopian government as a short term fix could issue credit notes for each transaction for the difference in exchange rate between the official bank rate and the parallel market. The credit note could be used to buy fixed asset in Ethiopia such as house. For example, if I send USD 1000 through the Banks I get Birr 51,000 and if I send same amount of USD 1000 through the parallel market, I get Birr 70000. The government has to issue me a credit note 70000-51,000= Birr 19000, that I could use toward a payment for land or housing from the government as an incentive of sending the hard currency directly to the coffers of the government. In the long term the exchange market may have to be liberalized( opening legally operating currency exchange shops) which automatically and significantly reduces the gap between the dynamically adjusted market based exchange rate and the parallel rate ( if their is going to be any).
Inaction by the government assuming Ethiopians will send money through banks for "patriotic reason" for a problem that the government has created by its own policy ( fixing the exchange rate , out of market trends) is not realistic and is preventing Ethiopia from earning huge amount of hard currency per year, that could have helped the government needs.
- It is also obvious that the government has to bring out the country from war and conflict and stabilize it with out further delay. Urgent opening of business owned by Tigrayans also helps the country and the owners and employees affected by the blockage. Collective punishment is a jungle rule and is counter productive and it has to be immediately stopped.
- From spiritual perspective killing and starving of innocent people/ citizens for a political or a military gain brings curse and judgment for the country and the government that affects the destiny of the country. The Ethiopian government has to take actions to that effect by allowing unfettered aid access to Tigray and other regions and, avoiding killing and arrest of innocent people. Abiy needs to do a soul search on this area and avoid inhumane actions and collective punishment with out separating the culprit from the innocent .
Re: Why is Ethiopia facing hyper inflation and short of hard currency?
Axumezana wrote: ↑26 Apr 2022, 05:47(1) Possible causes of hyper inflation:
- Demand and supply imbalance due to war and inefficient economy
- Decrease in productivity due to hyper corruption ( any request by the business community/individual business people are indefinitely held by the civil servants until they are paid), war and instability in the different parts of the country such as Tigray, Amhara and Oromia. Closure of Tigrayans owned businesses, power disruptions, disruptions on cement production and distribution by the involvement of non-value adding parasitic middlemen in the name of benefiting locals etc.
- Legal or Illegal export of Ethiopian products to neighboring countries with out earning hard currency or undervalued price ( Our neighbors like Eritrea, Djibouti , Somaliland, Somalia and Dubai could import Ethiopian products( legally or illegally) and re-export it to other countries to generate hard currency, this brings inflation with out generating hard currency/ undervalued earning for Ethiopia)
- Increase in the supply of paper money ( this could done by the government to cover short term war related costs or illegal printing of the money with out the knowledge of the government). We have been hearing that the Eritrean government or their agents have been involved on the illegal printing and distribution of the Ethiopian Birr.
- Global inflation due to Covid19 related demand/supply disruptions, fuel price increase, and currently the war in Ukraine.
(2) Possible reasons for shortage of hard currency:
- Decrease in production of export products due to the ongoing war, instability, deep corruption, inefficient government and economy, wrong land policy that limits access to land by investors and decrease productivity of land etc.
- USA and European Union ( EU) sanction on Ethiopia ( ban on AGOA, limitation from getting grant and loans from World Bank, IMF, EU loans and grants )
- Sharp decrease in foreign direct investment (FDI) due to the ongoing war, instabilities and political uncertainties
- Legal or illegal export of Ethiopian products to neighboring countries with out earning hard currency or earning undervalued price ( Eritrea, Djibouti , Somaliland, Somalia and Dubai are a suspect on this ). It looks undervaluation of Ethiopian export prices ( specially those exports to Dubai is decreasing the hard currency earning for the country, while increasing inflation due to increase in non-value or limited value adding demand ). Ethiopians exporters are responsible for this problem but Eritrean government agents may have been also involved on this.
- Diversion of hard currency generated by the diaspora due to the black ( parallel) currency market driven by the increase gap between Ethiopian Banks official exchange rate and parallel market exchange rate ( currently it is more than 30%). It has been observed that , the Eritrean government and their agents have been controlling the illegal Ethiopia related global currency exchange business and the hard currency collected from the diaspora is not going to Ethiopia. One wonders how the Eritrean government agents are getting the constant supply of the equivalent birr to sustain the continuous need for Birr. That raises the valid question, is Eritrea or its agents involved in a continues illegal printing and distribution of Birr, may be in coordination with corrupted Ethiopian officials?
- Import of war related hard ware consumes huge amount of hard currency with out bringing economic benefit( in short term) for the country.
- Global economic trends also affect the export hard currency earning but last three years trends show increasing in price on Ethiopian agriculture export commodity products
(3) Conclusions and recommendations
- It is understood that the Ethiopian government has a "financial/economy intelligence" unit that monitors and knows very well the illegal activates that are being committed against the economic sector of the country such as by exporters, Eritrean government agents operating on the parallel market in collusion to local banks, any illegally printed and distributed Birr, illegal exports , legal exports with undervalued prices etc. The governments may have to look what actions have been taken based on the findings of the intelligence unit. We also hear that Ethiopian agricultural commodities imported to Eritrea are cheaper in Eritrea than in Ethiopia, and if it is true , it calls for further investigation and action.
- Alarmingly deepening corruption at the tax authorities, electric power providers, investment units including investment land providers and all other civil service providing government organizations is destroying the economy by making businesses unattractive/ unprofitable , bureaucratic long delays( unless piad),increasing costs etc and calls for urgent short term and strategic actions.
- With regard to decreasing the hard currency diversion from the Ethiopia diaspora, the Ethiopian government as a short term fix could issue credit notes for each transaction for the difference in exchange rate between the official bank rate and the parallel market. The credit note could be used to buy fixed asset in Ethiopia such as house. For example, if I send USD 1000 through the Banks I get Birr 51,000 and if I send same amount of USD 1000 through the parallel market, I get Birr 70000. The government has to issue me a credit note 70000-51,000= Birr 19000, that I could use toward a payment for land or housing from the government as an incentive of sending the hard currency directly to the coffers of the government. In the long term the exchange market may have to be liberalized( opening legally operating currency exchange shops) which automatically and significantly reduces the gap between the dynamically adjusted market based exchange rate and the parallel rate ( if their is going to be any).
Inaction by the government assuming Ethiopians will send money through banks for "patriotic reason" for a problem that the government has created by its own policy ( fixing the exchange rate , out of market trends) is not realistic and is preventing Ethiopia from earning huge amount of hard currency per year, that could have helped the government needs.
- It is also obvious that the government has to bring out the country from war and conflict and stabilize it with out further delay. Urgent opening of business owned by Tigrayans also helps the country and the owners and employees affected by the blockage. Collective punishment is a jungle rule and is counter productive and it has to be immediately stopped.
- From spiritual perspective killing and starving of innocent people/ citizens for a political or a military gain brings curse and judgment for the country and the government that affects the destiny of the country. The Ethiopian government has to take actions to that effect by allowing unfettered aid access to Tigray and other regions and, avoiding killing and arrest of innocent people. Abiy needs to do a soul search on this area and avoid inhumane actions and collective punishment with out separating the culprit from the innocent .
Re: Why is Ethiopia facing hyper inflation and short of hard currency?
this is brilliant solution not only those Amhara diaspora get parallel market price but their money would be safe and they will not risk short changing or given fake birr note... sometime it happened if u give them 100 dollar they will switch it and they claim your dollar is fake and return it to you only to find out they switch it on you later and you have no way of recourse so it is better to exchange it in bank where you much more safe.. and you will not have any worry that some police offers will knock your doorAxumezana wrote: ↑17 Jun 2022, 06:51
(3) Conclusions and recommendations
- With regard to decreasing the hard currency diversion from the Ethiopia diaspora, the Ethiopian government as a short term fix could issue credit notes for each transaction for the difference in exchange rate between the official bank rate and the parallel market. The credit note could be used to buy fixed asset in Ethiopia such as house. For example, if I send USD 1000 through the Banks I get Birr 51,000 and if I send same amount of USD 1000 through the parallel market, I get Birr 70000. The government has to issue me a credit note 70000-51,000= Birr 19000, that I could use toward a payment for land or housing from the government as an incentive of sending the hard currency directly to the coffers of the government.
second this solution should be extended to local exporters who export cattle, and cow skin, coffee, and gold smuggled out of Ethiopia to fetch higher price in Kenya and Djibouti ... the same like the diaspora account let say one cattle fetch in Addis market 20,000 birr but in Djibouti it might fetch 40,000 birr now the government give the cattle merchant credit of 20,000 birr that can be used in local purchase for example cement , anything made in Ethiopia goods, and even car assembled in Ethiopia ...in the same manor the gold smuggler get the same exchange rate saving and they can use it to build their own house or start factory or startup machinery purchase that improve their gold business they can process the gold in finished gold jewelry
Re: Why is Ethiopia facing hyper inflation and short of hard currency?
Axumezana wrote: ↑26 Apr 2022, 05:47(1) Possible causes of hyper inflation:
- Demand and supply imbalance due to war and inefficient economy
- Decrease in productivity due to hyper corruption ( any request by the business community/individual business people are indefinitely held by the civil servants until they are paid), war and instability in the different parts of the country such as Tigray, Amhara and Oromia. Closure of Tigrayans owned businesses, power disruptions, disruptions on cement production and distribution by the involvement of non-value adding parasitic middlemen in the name of benefiting locals etc.
- Legal or Illegal export of Ethiopian products to neighboring countries with out earning hard currency or undervalued price ( Our neighbors like Eritrea, Djibouti , Somaliland, Somalia and Dubai could import Ethiopian products( legally or illegally) and re-export it to other countries to generate hard currency, this brings inflation with out generating hard currency/ undervalued earning for Ethiopia)
- Increase in the supply of paper money ( this could done by the government to cover short term war related costs or illegal printing of the money with out the knowledge of the government). We have been hearing that the Eritrean government or their agents have been involved on the illegal printing and distribution of the Ethiopian Birr.
- Global inflation due to Covid19 related demand/supply disruptions, fuel price increase, and currently the war in Ukraine.
(2) Possible reasons for shortage of hard currency:
- Decrease in production of export products due to the ongoing war, instability, deep corruption, inefficient government and economy, wrong land policy that limits access to land by investors and decrease productivity of land etc.
- USA and European Union ( EU) sanction on Ethiopia ( ban on AGOA, limitation from getting grant and loans from World Bank, IMF, EU loans and grants )
- Sharp decrease in foreign direct investment (FDI) due to the ongoing war, instabilities and political uncertainties
- Legal or illegal export of Ethiopian products to neighboring countries with out earning hard currency or earning undervalued price ( Eritrea, Djibouti , Somaliland, Somalia and Dubai are a suspect on this ). It looks undervaluation of Ethiopian export prices ( specially those exports to Dubai is decreasing the hard currency earning for the country, while increasing inflation due to increase in non-value or limited value adding demand ). Ethiopians exporters are responsible for this problem but Eritrean government agents may have been also involved on this.
- Diversion of hard currency generated by the diaspora due to the black ( parallel) currency market driven by the increase gap between Ethiopian Banks official exchange rate and parallel market exchange rate ( currently it is more than 30%). It has been observed that , the Eritrean government and their agents have been controlling the illegal Ethiopia related global currency exchange business and the hard currency collected from the diaspora is not going to Ethiopia. One wonders how the Eritrean government agents are getting the constant supply of the equivalent birr to sustain the continuous need for Birr. That raises the valid question, is Eritrea or its agents involved in a continues illegal printing and distribution of Birr, may be in coordination with corrupted Ethiopian officials?
- Import of war related hard ware consumes huge amount of hard currency with out bringing economic benefit( in short term) for the country.
- Global economic trends also affect the export hard currency earning but last three years trends show increasing in price on Ethiopian agriculture export commodity products
(3) Conclusions and recommendations
- It is understood that the Ethiopian government has a "financial/economy intelligence" unit that monitors and knows very well the illegal activates that are being committed against the economic sector of the country such as by exporters, Eritrean government agents operating on the parallel market in collusion to local banks, any illegally printed and distributed Birr, illegal exports , legal exports with undervalued prices etc. The governments may have to look what actions have been taken based on the findings of the intelligence unit. We also hear that Ethiopian agricultural commodities imported to Eritrea are cheaper in Eritrea than in Ethiopia, and if it is true , it calls for further investigation and action.
- Alarmingly deepening corruption at the tax authorities, electric power providers, investment units including investment land providers and all other civil service providing government organizations is destroying the economy by making businesses unattractive/ unprofitable , bureaucratic long delays( unless piad),increasing costs etc and calls for urgent short term and strategic actions.
- With regard to decreasing the hard currency diversion from the Ethiopia diaspora, the Ethiopian government as a short term fix could issue credit notes for each transaction for the difference in exchange rate between the official bank rate and the parallel market. The credit note could be used to buy fixed asset in Ethiopia such as house. For example, if I send USD 1000 through the Banks I get Birr 51,000 and if I send same amount of USD 1000 through the parallel market, I get Birr 70000. The government has to issue me a credit note 70000-51,000= Birr 19000, that I could use toward a payment for land or housing from the government as an incentive of sending the hard currency directly to the coffers of the government. In the long term the exchange market may have to be liberalized( opening legally operating currency exchange shops) which automatically and significantly reduces the gap between the dynamically adjusted market based exchange rate and the parallel rate ( if their is going to be any).
Inaction by the government assuming Ethiopians will send money through banks for "patriotic reason" for a problem that the government has created by its own policy ( fixing the exchange rate , out of market trends) is not realistic and is preventing Ethiopia from earning huge amount of hard currency per year, that could have helped the government needs.
- It is also obvious that the government has to bring out the country from war and conflict and stabilize it with out further delay. Urgent opening of business owned by Tigrayans also helps the country and the owners and employees affected by the blockage. Collective punishment is a jungle rule and is counter productive and it has to be immediately stopped.
- From spiritual perspective killing and starving of innocent people/ citizens for a political or a military gain brings curse and judgment for the country and the government that affects the destiny of the country. The Ethiopian government has to take actions to that effect by allowing unfettered aid access to Tigray and other regions and, avoiding killing and arrest of innocent people. Abiy needs to do a soul search on this area and avoid inhumane actions and collective punishment with out separating the culprit from the innocent .
Re: Why is Ethiopia facing hyper inflation and short of hard currency?
Why did you bring this thread to life? To claim you were right?
All your writing explains is you have no clue about economics. Primarily, you need to understand the difference between symptom and cause. That is enough lesson for you for Today.
All your writing explains is you have no clue about economics. Primarily, you need to understand the difference between symptom and cause. That is enough lesson for you for Today.
Re: Why is Ethiopia facing hyper inflation and short of hard currency?
Educator ,
If you are an economist , you are welcome to give detailed analysis on the pros and cons of the government exchange rate liberalization decision.
If you are an economist , you are welcome to give detailed analysis on the pros and cons of the government exchange rate liberalization decision.
Re: Why is Ethiopia facing hyper inflation and short of hard currency?
Axumezana wrote: ↑26 Apr 2022, 05:47(1) Possible causes of hyper inflation:
- Demand and supply imbalance due to war and inefficient economy
- Decrease in productivity due to hyper corruption ( any request by the business community/individual business people are indefinitely held by the civil servants until they are paid), war and instability in the different parts of the country such as Tigray, Amhara and Oromia. Closure of Tigrayans owned businesses, power disruptions, disruptions on cement production and distribution by the involvement of non-value adding parasitic middlemen in the name of benefiting locals etc.
- Legal or Illegal export of Ethiopian products to neighboring countries with out earning hard currency or undervalued price ( Our neighbors like Eritrea, Djibouti , Somaliland, Somalia and Dubai could import Ethiopian products( legally or illegally) and re-export it to other countries to generate hard currency, this brings inflation with out generating hard currency/ undervalued earning for Ethiopia)
- Increase in the supply of paper money ( this could done by the government to cover short term war related costs or illegal printing of the money with out the knowledge of the government). We have been hearing that the Eritrean government or their agents have been involved on the illegal printing and distribution of the Ethiopian Birr.
- Global inflation due to Covid19 related demand/supply disruptions, fuel price increase, and currently the war in Ukraine.
(2) Possible reasons for shortage of hard currency:
- Decrease in production of export products due to the ongoing war, instability, deep corruption, inefficient government and economy, wrong land policy that limits access to land by investors and decrease productivity of land etc.
- USA and European Union ( EU) sanction on Ethiopia ( ban on AGOA, limitation from getting grant and loans from World Bank, IMF, EU loans and grants )
- Sharp decrease in foreign direct investment (FDI) due to the ongoing war, instabilities and political uncertainties
- Legal or illegal export of Ethiopian products to neighboring countries with out earning hard currency or earning undervalued price ( Eritrea, Djibouti , Somaliland, Somalia and Dubai are a suspect on this ). It looks undervaluation of Ethiopian export prices ( specially those exports to Dubai is decreasing the hard currency earning for the country, while increasing inflation due to increase in non-value or limited value adding demand ). Ethiopians exporters are responsible for this problem but Eritrean government agents may have been also involved on this.
- Diversion of hard currency generated by the diaspora due to the black ( parallel) currency market driven by the increase gap between Ethiopian Banks official exchange rate and parallel market exchange rate ( currently it is more than 30%). It has been observed that , the Eritrean government and their agents have been controlling the illegal Ethiopia related global currency exchange business and the hard currency collected from the diaspora is not going to Ethiopia. One wonders how the Eritrean government agents are getting the constant supply of the equivalent birr to sustain the continuous need for Birr. That raises the valid question, is Eritrea or its agents involved in a continues illegal printing and distribution of Birr, may be in coordination with corrupted Ethiopian officials?
- Import of war related hard ware consumes huge amount of hard currency with out bringing economic benefit( in short term) for the country.
- Global economic trends also affect the export hard currency earning but last three years trends show increasing in price on Ethiopian agriculture export commodity products
(3) Conclusions and recommendations
- It is understood that the Ethiopian government has a "financial/economy intelligence" unit that monitors and knows very well the illegal activates that are being committed against the economic sector of the country such as by exporters, Eritrean government agents operating on the parallel market in collusion to local banks, any illegally printed and distributed Birr, illegal exports , legal exports with undervalued prices etc. The governments may have to look what actions have been taken based on the findings of the intelligence unit. We also hear that Ethiopian agricultural commodities imported to Eritrea are cheaper in Eritrea than in Ethiopia, and if it is true , it calls for further investigation and action.
- Alarmingly deepening corruption at the tax authorities, electric power providers, investment units including investment land providers and all other civil service providing government organizations is destroying the economy by making businesses unattractive/ unprofitable , bureaucratic long delays( unless piad),increasing costs etc and calls for urgent short term and strategic actions.
- With regard to decreasing the hard currency diversion from the Ethiopia diaspora, the Ethiopian government as a short term fix could issue credit notes for each transaction for the difference in exchange rate between the official bank rate and the parallel market. The credit note could be used to buy fixed asset in Ethiopia such as house. For example, if I send USD 1000 through the Banks I get Birr 51,000 and if I send same amount of USD 1000 through the parallel market, I get Birr 70000. The government has to issue me a credit note 70000-51,000= Birr 19000, that I could use toward a payment for land or housing from the government as an incentive of sending the hard currency directly to the coffers of the government. In the long term the exchange market may have to be liberalized( opening legally operating currency exchange shops) which automatically and significantly reduces the gap between the dynamically adjusted market based exchange rate and the parallel rate ( if their is going to be any).
Inaction by the government assuming Ethiopians will send money through banks for "patriotic reason" for a problem that the government has created by its own policy ( fixing the exchange rate , out of market trends) is not realistic and is preventing Ethiopia from earning huge amount of hard currency per year, that could have helped the government needs.
- It is also obvious that the government has to bring out the country from war and conflict and stabilize it with out further delay. Urgent opening of business owned by Tigrayans also helps the country and the owners and employees affected by the blockage. Collective punishment is a jungle rule and is counter productive and it has to be immediately stopped.
- From spiritual perspective killing and starving of innocent people/ citizens for a political or a military gain brings curse and judgment for the country and the government that affects the destiny of the country. The Ethiopian government has to take actions to that effect by allowing unfettered aid access to Tigray and other regions and, avoiding killing and arrest of innocent people. Abiy needs to do a soul search on this area and avoid inhumane actions and collective punishment with out separating the culprit from the innocent .