Leather industries call for change in forex surrender

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No foreseeable change, cite central bank officials

Leather industries request the government to remove the 70/20/10 forex surrender as foreign currency shortage takes a tight grip on their business. Officials from the national bank have however underlined that there will be no change soon.
Leather industries through their association, the Ethiopian Leather Industries Association (ELIA) have submitted their request to the National Bank of Ethiopia (NBE) calling for a reduction of retention to 50/50 surrender.
“Most of leather industries are working under their capacity and some have stopped their production due to shortage of inputs,” said Solomon Getu, Secretary General of the association which has 167 members.
As he elaborates, most of the chemicals and machineries for the leather industries are imported and with the shortage in hard currency, the necessary components are now out of reach.
“It’s been a year since our members received foreign currency from banks. We are now asking for the access of forex which we got through products export,” said Solomon.
“They can request, however, as the decision is made by the government so far there is no lead in making changes, at least not for now,” said Fikadu Digafe, vice governor of NBE whilst commenting on the issue.
“If this policy is not changed it will be difficult for industries to continue in both production and export,” emphasized Solomon.
According to the national bank directive amendment of retention and utilization of foreign currency no 79/2022, banks are required to surrender 70 percent of the foreign currency earnings from export of goods and services, similar to remittance and NGOs who ought to transfer to the national bank. Exporters of goods and services and recipients of inward remittance get only 20 percent of their export earning in foreign currency after deducting 70 percent to the central bank. The remaining 10 percent is surrendered to the respective bank.
Experts argue that the directive encourages the parallel black market in forex trading; which currently has a significant gap compared to the legal market in terms of exchange rates offered.
It is widely thought that the surging inflation and a shortage of hard currency in Ethiopia are driving up the price of the US dollar on the black market.
Due to the increased demand for foreign currencies, the dollar exchange rate at the parallel market skyrocketed making the official and parallel markets to drift exponentially apart.
Commenting on the issue Fikadu said, “The parallel market has been going at 100 birr and above per dollar. Now the value is between 92 and 94 birr. The actions we have taken have stopped it from daily increase. However, it is difficult to fully destroy it.”
Over the past ten years, the Ethiopian birr has depreciated significantly against the U.S. dollar, primarily through a series of controlled steps. Over the past years, everything has been changing so fast and exchange rates are rapidly fluctuating due to the political uncertainty in the country. The conflict in Northern Ethiopia and the instability in most parts of the country are among the factors that are said to have contributed to the skyrocketing exchange rate of foreign currency.
Previously, exporters and inward remittance earners were required to surrender 50% of their total earnings to NBE. Amount of proceeds to be retained has significantly decreased: Under the Old Directive, retaining 40% of the total foreign currency earning for indeterminate period of time in a retention account was permitted after deduction of the 50% surrender requirement. The remaining 10% of foreign currency amount was required to be surrendered to the respective commercial banks based on the prevailing exchange rate and using the buying rate.