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Redesigning forex mechanisms signaled as crucial by new study

Despite the agriculture sector being the major source of hard currency it has benefited only two percent for capital goods import on the sector, new study reveals. The study as part of ticking the solution box to the hurdling issue, recommends the country to adopt a multiple exchange system.
Will Consult, a firm hired by the Addis Ababa Chamber of Commerce and Sectoral Association, to assess the ‘the problem and key issues of shortage of forex, and its impact on business’ disclosed that despite the regulatory body, National Bank of Ethiopia (NBE), issuing rules and directives to control the foreign currency allocation, the execution was not properly regulated.
The identification of the study that was presented by Yirga Tesfaye, General Manager of Will Consult and part of the study group, said that NBE does not have a capacity to govern the foreign currency allocation as per the directive it imposed.
The dis-link between Customs Commission and NBE is also stated as a factor for the gap to control the scheme.
From data derived from the questionnaire from staffs at NBE and commercial banks, both interviewees believed that the foreign currency allocation directive is being properly implemented.
“NBE’s law enforcement operations are limited in terms of its expertise and infrastructure. Supervising bank businesses is getting beyond NBE’s capability, while forex allocated for priority items is used to import other profitable commodities. Nobody controls what is permitted and what is imported,” the presenter said.
He added that despite the number of exporters significantly increasing the volume, the value of export was stagnant, to which he argued that the regulatory body directives don’t encourage the export business.
There would be a mechanism to solve the drawback of the agriculture sector accessing the foreign currency properly since it is crucial to elevate the foreign currency shortage.
The whole economy should be cured to uplift the hard currency generation, Yirga said on his recommendation by adding, “Prevailing forex problems cannot be solved separately and immediately.” He expounded that giving priority for business and economic issues even before politics is a must to change the scenario, as he pushed for the improvement of peace and security, and encouraged a boost to the agriculture industry.
According to the study, the lion’s share of the hard currency allocation went to the import of industrial capital goods, and posed the question; where is the actual performance of the sector? Who consumed about one fourth of hard currency of the country?
“Increase capital investments, was identified as very low even on the flow of foreign direct investment, in to agriculture, agro-processing, import substitution and related value chains,” Yirga presented on his possible changes that the sector needs.
He added that ensure a significant share of profit from export of agriculture outputs was channeled back to the sector.
The study has also argued that the measure the government took to devaluate the currency on the aim to improve the export sector did not actually show change on the export sector and hard currency earnings.
“To improve the availability of foreign currency, the redesign of the system is a must,” he explicitly said.
Manage the demand and increase the supply of hard currency is recommended, so in the short term categorize the priorities of imports is supposed to be applied.
Redesign the mechanism of forex surrender retention and utilization role is also recommended, “We are recommending a multiple terms of exchange system for certain period of time like five years as a transition into a fixable or floating system.”
In the long term the country should utilize its comparative advantages and develop a few selected strategies, “develop global competitiveness of selected sector in terms of scale, efficiency and quality.”
As parts of the long term strategies, improving the capacity of NBE has been recommended and liberalizes the forex market has been also recommended with transitional process.

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