Aiming to stabilizing the macro economy, the government of Ethiopia established National Macro economy Committee on April 2021 last year. in order to carry out its objective of stabilizing the distorted market posed by shortage of supply of commodities and hard currency in banks, the committee recommended the introduction of utilizing Franco-valuta in which importers to be allowed to import selected basic commodities such as edible oil, rice and children nutritious food worth of 250,000 Dollar by their own foreign currency.
The macro economy committee reached to such decision because of the gap occurred between supply and demand of basic foods in the market.
After the introduction of the directive in the last 6 months, the Ministry of Finance announced that, the tax law imposed on the commodities amended and permitted importation of wheat, edible oil and rice made free of tax but duty and vat tax was imposed on imported pasta, macaroni and egg.
Recently again the Ministry of Finance in order to stabilize the ever growing price hike announced that it allowed that Ethiopian Diaspora who have green card in their residential country to import commodities such as edible oil, wheat, sugar and children milk through Franco valuta directly under the auspicious of Ethiopian customs commission.
According to Wasihun Belay, a financial economist, who is working for various firms as consultant, Franco valuate enables a trader to import commodities by his own foreign currency without buying the currency from Banks. This trading system can serve as a provisional but if not controlled, it strictly stipulates the money to be legally obtained. Thus, such type of trade is one option and does not bring a long lasting solution for the pervasive market stability and to mitigate the problems other solutions should be forwarded.
As to him, as the utilization of Franco valuta has its own positive role while there is a threat that it might bring a negative consequence on the economy unless it is cautiously managed. The Ministry of Finance gave the managerial mandate to the National Bank of Ethiopia to scrutinize the source of the foreign currency used for Franco valuate though the question how the Bank is going to inspect the source of the money relies on it. This question needs its own answer. Some economists argue that certain illegal traders might engage in the importation of commodities by purchasing the Dollar from black market and such practice might strengthen black market and aggravate illicit financial transaction. It is not clear how the National Bank could trace weather the diaspora hard currency deposited in foreign county legal or not. The need for legal frame work is due to possibility of negative consequence induced as a result of positive intention to use Franco valuate for importation of commodities.
Others also argue that the instruction which allows traders to utilize Franco valuta does not go in line with instructions introduced to contain black markets. Therefore, there should be compatibility between the two instructions.
Solomon Zegeye is also an economist who is working as advisor for various firms. As to him, in the previous time, no one did conduct study whether the utilization of Franco valuta has brought positive impact on stabilizing the economy or not.
In the past, though the mandate with regard to using Franco valuta was given to the National Bank of Ethiopia, traders used to forward their request to the Ministry of Finance to get permission. But the issue whether the importers have brought market stability is not known and needs further study.
However, as to Solomon, it is undeniable fact that had there not been the introduction of Franco valuta, the price hike would have been exacerbated. But questions such as whether the market is stabilized or not, inflation is reduced or not, the role of local producers in increasing production, and how they satisfy the local demand should be addressed.
As to Solomon, reducing tax on commodities solely does not bring market stabilization. Therefore, increasing supply of commodities should be taken as a viable solution. In addition, the measures that have been taken by the government to supply commodities to the lower segment of the society should be strengthened.
As to Wasihun, two years ago, new currency of Birr was injected into the market and this insists one to ask essential questions like what was the outcome; what did it do in subsidizing oil price; did the macro economy stabilized; how lower income groups benefited from subsidies; and does production and productivity enhanced, these and other questions should get answer. The merits and demerits of the permission of Franco valuate should be verified and evidence should be provided.
For example, if a person imports 1000 tone wheat through Franco valuta and distributes the product to few people, it is fair to say that the importation helps stabilizing the market. Therefore, its value should be explained in such objective way.
The Ethiopian economy is still challenged by consequences of the war broke out in the northern part of the country which is lasted for the last 16 months. Though the advancement of the terrorist TPLF was reversed from Northern Shewa, the farmers were strictly hampered to the extent to be unable to plough their lands. In addition to these, in the western and southern parts of the country, farming was disrupted by insurgents, the drought plunged in the southern and eastern regions of the country also critically affected the pastoral lively hood.
Moreover, the economic sanctions imposed by the western countries and their allied financial institutions triggered the inflation rate to rose up to 50 percent and had there not been the government subsidy, the economic crises would have been more than currently witnessed.
In general, the policy intervention and the introduction of Franco valuate played their own positive role in containing the price hike. To create trust, traders involved in Franco valuta should provide evidence where did they get the money and their capital amount. It should also be checked whether they imported extra commodities that are not officially enlisted to be imported.
As to Wasihun, taking Franco valuta as option to close the gap of the demand and supply of hard currency by the government clearly shows how it is in a stressed situation hence, it should be understood that the importation of commodities through Franco valuate must continue only for the time being and looking other options to garner foreign currency is essential and the practice should not be continued for more than two years.
The government should strengthen the institutional system because when institutions become weak they would become personalized. The current trend witnessed in some banks that creating personalized relation with illegal traders for their own personal gain should be punishable. When things go wrong black market also will be rampant and the gap in the dollar -birr exchange rate between official and parallel market will be widen which in turn harms the nation’s economy at large. When the government faces hard time and challenges, it is forced to take harsh measures and the permission of the utilization of Franco valuta can be categorized as bold measures.
But as to Wasihun, government officials and their advisors should recurrently evaluate the practice. Nevertheless, if the utilization stay for long, it might further aggravates the government budget deficit because of the reduction of the government revenue.
On the other hand, to stabilize the economy, the government should look reduction of its expense as better option. For example, if car owners utilize oil uneconomically, it should ban the importation of second hand cars.
When black market is expanded the price of the imported goods and commodities will be increased. Therefore, importers should be restricted to import only basic commodities.
The other practice which pose price hike is corruption in government offices such as in revenue authority. When revenue officers unnecessarily impose tax the importer transfers the additional price to the consumers in which ultimately the ordinary citizens will be affected.
BY ABEBE WOLDEGIORGIS
THE ETHIOPIAN HERALD WEDNESDAY 27 APRIL 2022
