The financial sector’s regulatory body, National Bank of Ethiopia (NBE), revises bank’s reserve requirements by introducing a new rate amidst the skyrocketing inflation.
The regulatory body in its 8th amendment of reserve requirement directive no. SBB/84/2022 that became effective on June 9, states that the reserve requirements of banks to be reduced to 7 percent, which is a new rate when compared to the preceding experience.
The new rate replaces the former amount that was effective from September 1, 2021, which doubled the long established five percent rate to 10 percent.
However, the 7th amendment of SBB/80/ 2021 reserve requirement stayed on for a few weeks since the banks were allowed to get a transition period of 3 months to meet the 10% reserve requirement starting from September 1, 2021, and then in December 2021 the central bank gave a waver for banks to utilize two percent of their reserve to finance the coffee sector. The waiver was given for seven months which comes to an end this month.
As a result the reserve requirement was technically 8 percent for the past several months.
When the NBE Board of Directors chaired by Girma Birru (Amb) decided to review the reserve requirements on August 27, 2021 with some additional monetary policy reviews, it was disclosed that the outstanding credit to the private sector grew to 40.8 percent (year on year/yoy) in July, 2021, and disbursement during the month grew at about 125 percent, compared to the same period of last year.
The 6th amendment of reserve requirement issued under directive no. SBB/55/2013 had been in effect for almost eight years.
“Such a rapid growth of credit poses significant risks to price and financial stability, in the context of a rising inflation which reached 26.4 percent (yoy) in July. Consequently, the Board has decided to raise the reserve requirement in birr and foreign currency deposit liabilities held by commercial banks to 10 percent, from the current level of 5 percent, effective on September 1, 2021,” the Board of Directors said on their statement late August last year.
The decision of the board indicated that the major reason to revise the directive and increase the rate was the growing trend of the inflation, while the latest move is seen on the verge the increment behavior of the inflation that skyrocketed to 36.6 percent as per April’s monthly inflation figure.
On his budget speech about two weeks ago Ahmed Shide, Minister of Finance (MoF) and one of the five members of NBE’s Board of Directors, told parliament that the government will work to reduce the inflation growth rate to 11.9 percent in the coming budget year.
The country first introduced the reserve requirement through Directive No. SBB/14/96 which came to effect on January 1, 1996 with a 10 percent requirement. The highest reserve requirement was 15 percent under the 4th amendment of directive no. SBB/45/2008, which was effective on April 7, 2008 and lasted till January 1, 2012 to reduce to 10 percent. It is to be recalled, that 2008 and the following years were the period that the country saw the highest inflation ever.
It was recorded that in the first quarter of 2008, the general inflation peaked at 60 percent, while the food inflation was at a staggering 81 percent.
NBE puts forth new threshold in reserve requirements
Trade ministry pushes for overseas capital accounts
On the aim to benefit from service goods in business activities under the CFTA, the trade negotiating committee under the Ministry of Trade and Integration requests the steering committee to consider a significant policy shift for the Ethiopian business community to have an overseas capital account.
The Ministry has also approved a list of goods to go through the tariff removal as well as other sectors that would be totally closed.
“We have submitted the final document to the chairperson of the steering committee led by Mamo Mihretu, Senior Advisor and Chief Trade Negotiator in the Prime Minister’s Office,”Mussie Mindaye, Director General of Trade Relation and Negotiation at MoTRI told Capital, adding, “the chairperson, is responsible to submit the document for final approval.”
The National Macroeconomic Committee led by Prime Minister Abiy Ahmed is the body that will give the final decision on the document.
Though it will be difficult for Ethiopians to benefit from the CFTA or other countries’ service offers as its not allowed to have overseas capital accounts, it needs a policy change expressed Mussie, so as to reel in the desired results. This is also advantageous for the country as it increases import rate of service goods whilst also having the ability to create competition in the market and stabilize prices, he further added.
Mussie expressed his expectation that the document will be approved very soon. “The country shall not be stated as late to come up with the tariff offer of products and services since there are countries that have not yet finished the identification process,” he opined.
So far 34 countries have come up with their tariff offers and 47 countries have submitted their service commitments, while trading has not yet begun.
The CFTA will bring together fifty-four African countries with a combined population of more than one billion people and a combined gross domestic product of more than USD 3.4 trillion.
The main objectives of the CFTA are to create a single continental market for goods and services, with free movement of business persons and investments, and thus pave the way for accelerating the establishment of the Customs Union. It will also expand intra-African trade through better harmonization and coordination of trade liberalization and facilitation and instruments across the RECs and across Africa in general. The CFTA is also expected to enhance competitiveness at the industry and enterprise level through exploitation of opportunities for scale production, continental market access and better reallocation of resources. The establishment of the CFTA and the implementation of the Action Plan on Boosting Intra-African Trade (BIAT) provide a comprehensive framework to pursue a developmental regionalism strategy. The former is conceived as a time bound project, whereas BIAT is continuous with concrete targets to double intra-African trade flows from January 2012 and January 2022.
We’ve achieved against all odds, PM emphasizes
Prime Minister Abiy Ahmed defends his government by stressing the fact that massive economic achievements have been attained bearing in mind the difficult situations.
Even though he is expected to come to the parliament before the end of the budget year, which will end on July 7, to present his administration annual performance and proposed the ratification of the coming budget year, the PM has appeared at the parliament on Tuesday June 14 to provide his responds for the questions presented by members of the parliament.
Despite the expectations being that he would make his presentations at the end of the budget year come July 7 for the address of his administration’s annual performance alongside the proposed ratification of the coming budget year, the PM made an appearance in parliament on Tuesday June 14 to provide response to questions presented by members of parliament.
In his deliberation that took more than three hours, he covered the social, economic, political and current affairs issues.
Regarding economic and social issues, the PM defended his government’s performance, whilst he did not zoom in to touch upon the details on inflation.
Nonetheless, the PM highlighted several success results which the country registered in the reform period in the current budget year.
For instance he stated that the country debt that includes the external debt had shown significant reduction in the reform period.
In spite of the country facing different pressures from international and local forces and global situation like COVID 19, the government has performed very well in terms of settling debt.
He said that the government is committed to repay borrowers and added that before the reform the country debt was 58 percent of the GDP which has since narrowed to 50.5 percent.
Every year the country allocates huge budget for debt settlement. The debt settlement budget has become one of the biggest portions over the years, which remains similar in the proposed next budget year.
Regarding road networks, Abiy said that the national road sector development for the past about four years have seen positive expansions. Similarly, he pointed out that the Addis Ababa city asphalt road project has hugely been developed.
He explained his case by citing the asphalt concrete constructed at western Gojam zone of Ahmara region, which is a 520 km stretch of a road.
The road sector development in the past few years has shot up by 40 percent when compared with the preceding year.
He said the road network that was 127,000 km before the reform has reached 165,000 km. An additional 4,700 km asphalt road has been constructed in the reform period that was 13,000 km about four years ago, while more 22,000 km road projects are in different stages.
Regarding the sugar sector development, the PM stated that the sugarcane plantation has tripled in the past few years besides finalized five new millers that drove up the sugar factory numbers to nine.
So far the sugar production capacity has amped to 365,000 metric tons from 200,000 metric ton about three years ago.
However, he said that there is still a gap between the demand and supply of the sweet.
Regarding industry parks development, Abiy said that in the past few years 12 industry parks including three agro processing facilities have been inaugurated that are expected to expand the industry sector development in an integrated manner.
The number of truckers that are engaged in farming have reached 5,000, which is stated by the PM as a big success on the way to transforming the agriculture sector. He added that through agricultural cluster development about 45 percent of farm land have been included, “of course it would be better if we improve the percentage to 55 percent.”
Regarding the prominent dry season wheat production there have been massive performance attained since the initiative was introduced, and to this end he hinted that the country will commence the grain export in the near future besides substituting the import of wheat, which consumes huge amounts of hard currency every year.
Abiy further said that the government has given ample attention to the agriculture development which he indicates that the sector financing has been blooming.
“From the total 267 billion birr credit, the facility 73 billion birr was taken by the agriculture sector, while the government has subsidized 15 billion birr for fertilizer. Such attention to the agriculture sector that is given by the government has managed to ease the international pressure,” he remarked.
Policy to govern intellectual property on the horizon
The Intellectual property organization prepares a 10 year policy and strategy aimed to promote and increase the use of IP in areas where Ethiopia has comparative and competitive advantage.
“This policy provides us with the much needed framework which lets us know the needs of the country, and thus we will effectively render our support by knowing what technical assistance to give to stakeholders in the country,” stated Loretta Asiedu, representative to the World Intellectual Property Organization which is known for bringing stakeholders together to develop global IP agreements.
The national intellectual property policy and strategy/NIPPS/ will be implemented over a ten-year period beginning from the date of its approval. The national IP policy is also viewed to be very dynamic.
“The NIPPS implementation will require the involvement and participation of a number of public and private bodies,” said Ermias Yemanebirhan, Director General, Ethiopian Intellectual Property Authority, adding, “Each of these bodies is expected to take measures envisaged in the policy.”
“This draft policy is intended to provide a framework for integrating intellectual property into national and sectoral development policies and strategies, helping to ensure the formation of a development-oriented IP system, trying to encourage the use of IP as a strategic instrument, and fostering the monitoring and evaluation of the IP system’s impact,” said the Director General.
According to the draft, the key institution that will oversee the implementation and coordination of the relevant public and private bodies will be the National IP Council.
According to the draft, the National IP Council will be headed by the Deputy Prime Minster and will consist of top government officials and leaders of private institutions.
When approved the policy is also expected to review and amend existing laws dealing with intellectual property enforcement and provide an adequate, uniform and effective procedures and remedies against infringement of intellectual property rights having regard the Provisions of Part III of the Agreement on Trade related Aspects of Intellectual Property.
