Political Economy

Where will market or the Economy?

By Anteneh Mekonnen
It is expected that a large number of Diasporas will come to Ethiopia to celebrate the millennium, and with them, enormous amount of foreign currency is expected to arrive into Ethiopia. But, the question is: where will that money end up, to commercial banks and then to the economy; or the Black market and then vanish through the sands. Foreign currency is the fuel to develop a country’s economy; from the fertilizer used by the farmers to the foreign goods that are cramming the shops of Addis are bought using foreign currency. Ethiopia’s long term plan for the construction of roads, dams and factories could only be realized through the power of foreign currency, but this could be possible if each foreign currency coming to the country is directed to the economy. Among Ethiopia’s sources of foreign currency, the Ethiopian Diaspora are significant contributors, for example, reliable sources estimate that 341 million dollars were received from the Ethiopian Diaspora through inward remittances in 2004/2005; this figure is almost equal to 44% of what the Ethiopian export was able to generate in the same year, which indicates that how much the Ethiopian Diaspora are supporters of the country’s economy. Irrespective of such contribution, a big question is still remained unanswered: Does Ethiopia is utilizing the full potential of the foreign currency coming through the Ethiopia Diaspora? Thanks to the Black market shops opened in each corners of Addis, the Ethiopian Diaspora are forgetting currency, in stead they are directly heading to the Black Marketers, and it is becoming the normal life style of the Ethiopian Diaspora, and I am afraid that this will be so even during the Millennium festival i.e. If the black marketers are left untouched during the Millennium festival, a significant portion of the foreign currency coming to this country will end up in the black market leaving commercial banks empty handed. This should not be so and it has to be corrected at least during the millennium festival period as the amount of foreign currency expected to arrive into-Ethiopia is enormous; and no one but the economy should be the beneficial of such fortunes that comes once in a thousand year. In order to correct such future event, however, harmony and cooperation is needed among the Ethiopian Government, the National Millennium committee, the National Bank of Ethiopia and commercial banks in the objective of ending up each foreign currency coming during the Millennium festival in the hands of Commercial Banks by developing different types of strategies that could range from a hard-line strategy to moderate ones, and the following are the few possibilities:
Law Enforcement
Law enforcement, which is closing Black market shops and bringing individuals involved in Black market into justice, could be one of the solutions of driving all the foreign currency coming during the Millennium festival to commercial banks. This is from the fact that if the black shops are closed, those that planned to go to commercial banks. However, this should not be taken as a permanent solution in eliminating black market from Ethiopia because as long as there is a gap in the demand and supply of foreign currency, Thus, if each individual coming to celebrate the millennium festival are made fully aware of consequences of exchanging in the black market, it will be possible to draw a large number of the Diasporas which could have gone to the Black Market, to come to commercial banks and exchange their foreign currency. The Law enforcement, if used, could bring the desired result during the millennium festival as there is little difference between the buying rates offered by the Black Market and Commercial Banks. If we take recent market rate: For 1 USD, Birr 8.9 was offered by the Black market, while 8.8 was offered by Commercial Banks; For Pound Sterling, 17.40 was offered by the black market, while 17.3630 was offered by commercial banks; For Euro, 11.85 was offered by the black market, while 11.80003 was offered by commercial banks. And, a sensible person does not take the risk of falling in the hands of the law for insignificant benefits. Adjusting the Buying rates without touching the Selling rates:
Extensive promotion in the side of Commercial Banks There is a saying that “bas event will not leave the mind easily”, many individuals are still thinking in the old times, remembering when one dollar was two birr, and still run to the black market whenever a dollar gets into their hands,. They still think that there is huge rate difference between the black market and bank rates; this greatly lies in the inadequacy of promotion in the sides of commercial Banks in promoting the prevailing rates by comparing it with the black market rates. People are not interested that one dollar is 8 birr; they are interested how much the rate differs with the black market, and The other option is the National Bank of Ethiopia adjusts the buying dollar rates to be competitive with the Black market rate during the Millennium Festival.
This goes to the root of the problem and eliminates the reasons to visit black market shops, this strategy could be implemented as the difference between the two markets is around 0.1 cents However the NBE should be careful not to touch the swelling rates as it will have a diverse effect making imported goods to be expensive, which will add fire in the current high inflation rate. On the other hand, adjusting the buying rates without touching the selling rates reduces the selling buying margin, which in effect decreases the Foreign exchange income of banks, however, this will be compensated by the volume of foreign exchange processed as the purpose of the strategy is to direct as much foreign currency as possible from the black market to commercial banks i.e when the NBE adjusts the buying rates to be competitive with the black market, more and more foreign currencies will end in the hands of commercial Banks, and the volume to generate higher income, which compensates the income losses due to reduction in the buying and selling rate margin. However this strategy as has a short coming if the black marketers adjust their rate benchmarking the buying dollar rate issued by the National Bank, this strategy will end up in the waste basket. Their rate benchmarking the buying dollar rate issued by the National Bank, this strategy will end up in the waste basket.
Extensive promotion in the side of Commercial Banks:
There is a saying that “bad event will not leave the mind easily”, many individuals are still thinking in the old times, remembering when one dollar was two birr, and still run to the black market whenever a dollar gets into their hands.
They still think that there is a huge rate difference between the black market and bank rates; this greatly lies in the inadequacy of promotion in the sides of commercial Banks in promotion in the sides of commercial Banks in promoting the prevailing rates by comparing it with the black market rates. People are not interested that one dollar is 8 birr; they are interested how much the rate differs with the black market, and this has to be included in the promotion agenda of commercial banks. For example, if individuals know that one Euro is 11.8003 in commercial banks and 11.85 in the black market, it may make them to forgo the insignificant benefits and come to commercial banks to exchange their foreign currency.
The other hurdles that are still in the mind of individuals is “the old communist procedure” Previous, under the Military government, individuals was burdened with questioned whenever they come to exchange a dollar-questions like. “Where did you bring this foreign currency”, “who gave it that to you”, “bring this document, bring that document” –questions that the free world wants to avoid. Not few still think that there are still such procedures in commercial banks and fear that they come to commercial banks to remove such hurdles from individual minds. Thus, much such promoting should be made during the Millennium festival in making the Ethiopian Diaspora to be aware of the rates and the procedures of exchange foreign currency in commercial banks in the objective of attracting as much foreign currency as possible in to the hands of commercial banks.
Creating awareness
Foreign currency is a key resource to develop Ethiopia economically and if Ethiopia is developed it is the benefit for us all.
The development, however, needs the full cooperation for its citizens. Much work has to be done in initiating each Ethiopia citizen for development, and coordinating each resource to the common goal. However this requires more than rules and regulations, it requires the willful cooperation of Ethiopians based on understanding and knowledge. Each has to leave insignificant selfish motives and start thinking for his/her country. In such context, the value and importance of foreign currency has to be taught widely, and the damage of directing precious foreign currency to the hands of the black marketers has to be stressed. It is possible to convince people by teaching what is right and what the truth is. As one of Ethiopian nationals, the Ethiopian Diaspora should be clearly informed about the value of their foreign currency- its impact tot the economy through concrete evidences-that it is not only their loved ones that are benefiting from the foreign currency generated through them, but also the economy as long as they send it using the right channel
To conclude, the Millennium festival has to be directed in the objective of bringing short and long term benefits to the economy, one value is to focus upon the foreign currency coming with the Ethiopian Diaspora to celebrate the Millennium. To make such fortunes, however, it needs the cooperation of each stakeholder to develop and implement possible strategies in the objective of ending up the foreign currency into the hands of the commercial banks. The article is written in the purpose of initiating the stakeholders to do something on the issue before and during the Millennium Festival Ethiopia will be rescued from poverty, and the time that to happen will not be far away.