EthiopiaArticleLogistics
Ethiopia is embarking on a transformative economic journey with the National Bank of Ethiopia’s (NBE) groundbreaking decision to devalue the Ethiopian Birr by 30% against the US dollar and liberalize its foreign exchange market. Effective from July 29, 2024, this strategic move aims to address persistent foreign currency shortages and attract substantial foreign investment. Since then, the exchange rate has been changing daily, and the devaluation has now reached almost 40%, reflecting the market’s ongoing adjustment to this new policy.
The NBE’s Foreign Exchange Directive No. FXD/01/2024 (download below), also known as the Green Directive, is a pivotal reform introduced as part of Ethiopia’s broader economic adjustment program, under negotiation with the International Monetary Fund (IMF).
This directive transitions the country’s exchange rate regime to a market-based system, allowing the value of the Birr to be determined by supply and demand dynamics, as it is crucial for securing support from the IMF and World Bank. It involves restructuring Ethiopia’s external debt, stabilizing its macroeconomic framework, and enhancing its global competitiveness. For foreign investors, this change brings greater transparency, predictability, and opportunities for strategic financial planning, aligning their investments more closely with international market conditions while reducing the risks associated with currency fluctuations.
Addressing Past Challenges
In the past, international investors were held back by a lack of access to foreign exchange, making it difficult to import goods into Ethiopia and repatriate income earned in the country. The new regulations change this significantly:
- Exporters can retain 50% of their foreign exchange earnings, providing greater financial flexibility and encouraging export activities.
- The priority list system for foreign currency allocation is removed, ensuring a transparent and equitable mechanism for all importers.
- Independent Forex Bureaus are introduced, enhancing competition and service quality in the foreign exchange market.
Opening the Securities Market
One of the most exciting developments is the opening of Ethiopia’s securities market to foreign investors. This unprecedented move provides new avenues for portfolio diversification and capital investment, making Ethiopia more attractive for foreign capital. Beyond attracting foreign exchange, this initiative also holds the potential to drive sustainable economic growth, foster the development of the local financial sector, and enhance corporate governance. By integrating Ethiopia more deeply into global markets, it promotes knowledge transfer, technology exchange, and the overall modernization of the country’s economy.
What This Means for Your Business
For businesses looking to invest or set up their operations in Ethiopia, these reforms mean:
- Improved access to foreign currency
- Enhanced financial flexibility
- A more attractive investment climate overall
The market-based exchange rate regime ensures that exchange rates reflect true market conditions, allowing investors to make more informed financial decisions.
How TRAIDE helps companies navigate Ethiopia’s market
While these changes are promising, some aspects of the new foreign exchange regime still need to be clarified. TRAIDE helps companies stay up-to-date with the latest developments, ensuring they have the most recent information to make informed decisions. We support companies looking to capitalise on business opportunitiesaligned with the United Nations’ Sustainable Development Goals (SDGs). Many impactful businesses have been held back by the previous foreign exchange regime. TRAIDE is helping them to re-engage the Ethiopian market.
Do you have a business idea or are you looking for more information on the new foreign exchange directive? Reach out to us at [email protected]
