The women’s clothes that this Addis Ababa saleswoman imports from abroad have become inaccessible since Ethiopia, Africa’s second most populous country, carried out a painful liberalization of its currency in July.
In less than two months, the birr collapsed.
“There are no more customers and business is slow,” Woldegebriel, 36, a shop owner in the sprawling Merkato market, complained to AFP.
Like many countries, particularly in Africa, Ethiopia has already been facing very high inflation in recent years (up to 30% in 2022 compared to 2021), a cumulative consequence of the Covid crisis, the war in Ukraine, but also a severe drought and the war in Tigray.
And for Ethiopia’s 120 million people, the situation has gotten worse since July 30, when authorities in the still largely controlled economy announced a reform of the birr.
Until now ultra-controlled, its rate can now be set freely by commercial banks.
Immediately, the Commercial Bank of Ethiopia (CBE), the country’s main state-owned financial institution, lowered the value of the birr by 30% against major currencies.
Since then, the value of the Ethiopian currency has continued to decline (from 1 dollar for 55 birr before liberalization, to 112 today at the CBE) and has come closer to the black market rate, which is very dynamic in the East African country.
The effects were quickly felt by Medanit Woldegebriel, who mainly imports her clothes from Turkey or the United Arab Emirates. “This dress that cost 2,500 birr is now 4,500. These shirts were sold for 1,500 birr, they are now 2,500,” she lists.
Prohibitive prices in a country where 34.6% of the population lives below the poverty line (less than $2.15 per day), according to the World Bank.
Tewodros Makonnen Gebrewolde, an economist specializing in Ethiopia for the London-based International Growth Centre (IGC), acknowledges that “it’s a hard pill to swallow in the short term.”
“The authorities have promised better access to foreign currency for companies, which will allow them to increase their productivity and thus be able to produce more,” he notes.
For years, Ethiopia has severely restricted businesses’ access to foreign currency, due to a structural shortage linked to its heavy reliance on imports.
The latter (fuels, manufactured products, etc.) amounted to 23 billion dollars in 2023, compared to 11 billion in export revenues (flowers, tea, coffee, etc.), according to data from the World Bank.
As a result, many businesses have not been operating at full capacity in recent years due to a lack of raw materials or imported machinery.
– “Indispensable” reform –
Describing this reform as “indispensable” when it was announced, Prime Minister Abiy Ahmed insisted on the expected attractiveness effect for the Ethiopian economy, by lifting “the constraints on private sector investment and growth”.
Another expected consequence should be to boost exports, thanks to a more competitive currency.
In addition, due to the restrictions, some of the exports have been diverted through smuggling networks in recent years, according to Tewodros Makonnen Gebrewolde.
“Liberalization should bring them back to official channels, which means increased revenue,” the economist says.
The exchange rate reform had been expected for many years by international institutions, led by the IMF and the World Bank, while the Ethiopian authorities had long refused to do so.
A few days after this announcement, the IMF granted a four-year aid program of 3.4 billion dollars, followed by the World Bank (financing plan of 1.5 billion).
But Ethiopians are still far from seeing the fruits of these reforms.
Abrish (name changed) finishes his shopping in the alleys of Merkato: “All the products are more expensive than several weeks ago,” laments this civil servant.
“Without our family living abroad and able to send us foreign currency, we would not be able to survive,” he said.
