The black market versus the bank rate margin is now over 42%
More and more foreign companies are now using the black market causing the price of foreign currency to rise even higher and the difference between the legal exchange rate at banks and the black market to be over 42 percent. According to sources the rate changes every day on the black market. The current estimation is close to 40 birr per USD while it is about 28 birr at banks. One British Pound is 50 birr and one Euro is 45 birr.
In the past year for some time illegal foreign currency market rates went down closer to bank prices. Over the last few months they resembled a roller coaster but during the last couple of weeks they have skyrocketed again and now are much more different than the legal market. Sources say that this is happening because there are many foreign companies investing in Ethiopia but not registered at the international level, attempting to obtain foreign currency.
These people said that at present, foreign industries investing in Ethiopia are dominant players in the black market. They often are producing just as much as local investors but have better access to hard currency through the suppliers’ credit scheme to import inputs than similar but locally owned businesses.
Experts explained that currently foreign companies are able to manage huge liquidity since their business is the dominant player in terms of production throughout the year and they have a lower production cost than those who get a smaller portion of LC for their businesses.
“This allows foreign companies to amass a huge liquidity,” an expert who follows the industry sector explained.
Experts said that these investors should wait a long period to wire their foreign currency via banks to their home country since the country is in hard currency crunch.
“The growing liquidity by getting special access to foreign currency for their production and at the same time the shortage of hard currency to transfer their revenue to their home country has pressured investors mainly coming from Asian countries to be major players in the black market,” experts that worked with foreign investors explained.
They said that sometimes the investor collects the foreign currency locally but mainly focuses on the remittances sent by diaspora for family here.
The long waiting at banks to transfer their money to home countries pushes foreign investors to become a major player in the illegal currency market, a sales person working with foreign company told Capital. “They are collecting the foreign currency illegally here,” he added. He expressed his speculation that the current increase in the rate of the parallel market may be related with this new and growing demand.
Experts said that the suppliers’ credit scheme has created a vicious circle effect on the market. “Initially foreign companies secured hard currency through the scheme. However, other local investors and at the same time the extraordinary surplus reacting to the imbalance of LC disbursement has increased profit of foreign companies and liquidity pushing them to get foreign currency as soon as possible to wire to their home country,” experts explained.
Currently the government via the Ministry of Revenue and security apparatuses is trying its best to stop illegal foreign currency flow out of the country. It has seized a significant amount of foreign currency from smugglers including foreigners mainly those coming from Asia. Experts stated that it would be difficult to fully control the illegal remittance system, which requires the involvement of third party or country.