The government of Ethiopia recently introduced a new regulation and rules which allow foreign companies to engage in whole sale and retail trade in the country following Prime Minister Abiy Ahmed’s green light to do so. Sectors previously deserved to the local business men will be opened to the foreigners step by step from now on and the scheme is expected to improve the trade and transaction system of the country. The regulation also opens the door to foreign business men to engage in import and export trade.
Reflecting his view regarding the newly introduced regulation with regard to trade and business that needs to be implemented fully, Fikadu Petrose, a lawyer and consultant stated that in addition to improving the trade system, the policy would enhance the nation’s competitiveness in the international market.
Costentinos Berhetesfa (PhD), an economist, and lecturer at Addis Ababa University, said that from the very beginning, inhibiting foreign businessmen from engaging in the wholesale and retail trade was wrong. The new regulation, which allows foreign businessmen to engage in trade, would thus help modernize the trade system through knowledge and technology transfer.
It helps to resolve the problems pervasive in the trade value chain in the country, supports the enhancement of legitimate trade and stabilizes inflation. He also said that it brings opportunities to the local private sector to draw lesson and experience sharing. Though the involvement of foreign companies in whole sale and retail business though seems new in Ethiopia, it is common in the foreign world. Even diaspora Ethiopians have engaged in various retail businesses in many countries.
As to Fikadu, the government introduced the regulation due to desperate situation prevailed in the country because of the incompetency of local private sector. Though the government provided protection and incentives to the local business, they remained stagnant and failed to bring change in the sector.
The government supports businessmen for the growth of local industries but if they fail to go accordingly, it rather better to open the market to foreign companies so that the business relied more on competition rather than subsidy.
“Though the government provided protection to local companies, the price of production and products is increasing instead of decreasing. Therefore, to support consumers get goods with fair price, the government is coerced to open the market to foreign companies,” Fikadu said.
“To date, providing protection to local businessmen did not bring quenching benefit, even the subsidy is used appropriately” Fikadu exclaimed citing the introductory part of the regulation which indicated the failure of the provision of protection to the local companies.
A person who engaged in consulting trade and business, on his part noted that the government’s measures taken to improve the trade system failed to meet the objectives. Therefore, it was resorted to find other option that is opening up the sector to foreign actors and in his view; the government has taken wise decisions.
He further said that the demand for whole sale and retail business is growing from time to time. Unless the business is supported by foreign actors, it will be endangered. Currently, the wholesale and retail business is monopolized by few local companies. Thus, to make the sector competent; opening it to foreigners should be taken as a way out.
In the past, the government established companies such as “Alebejimla” in order to stabilize the market by allocating huge amount of investment but failed to fulfill its mission because the sector is monopolized by few local private companies. However, in line with allowing foreign companies to do business here, it is essential to inspect them when they conduct their business whether it goes in line with the rules and regulations introduced by the government.
According to Fikadu, the rules more benefit the consumers than the traders. The government provided incentive and protection to traders engaged in four sectors such as import, export, wholesale and retail trades. However, the expected outcome was not obtained. The government’s giving up of protection to the local traders, enables foreign companies to import huge amount of commodities and supply in fair price in which enable to stabilize the market.
Nevertheless, some argue that the incoming of foreign businessmen to engage in whole sale and retail trade might bring pressure on local traders. They further said that the current anomalies witnessed on the trade system are not created by the ill performance of local traders. A financial professional who demanded to hold his name anonymous said that he believes that the introduction of the new regulation and the incoming of foreign companies can improve the archive trade system but the failures of the local trade system is posed by the foreign currency crunch in the banks.
He further said that in fact, most traders took the foreign currency crunch as good opportunity to engage in clandestine activities such as illegal trade so that one can conclude that shortage of hard currency and the related financial policy play their part for the failure of the trade system.
As to the financial professional, side by side with the inviting of foreign companies to engage in whole sale and retail trade, governing the financial system through market system making the Dollar–birr exchange rates similar to the parallel market is essential. Otherwise, the presence of foreign investors here is no more effective.
In the past, the government agreed with the American Whole mart huge company to do business here and started working but due to shortage of hard currency because of the government’s monopolistic policy, the company canceled its plan. It leveled the government financial policy as impractical.
Therefore, as to him, inviting foreign companies should be accompanied with inviting foreign banks to do business here and determining the exchange rate based on market so that curbing foreign currency crunch will be possible. Unless these is realized, no foreign company comes here to engage in wholesale, retail, import and export trade.
He corroborated his argument by citing that currently one Dollar is exchanged by 57 Birr in the formal market in Banks while it is exchanged by 120 Birr in the parallel market and in such a situation, expecting foreign companies to come here and engage in trade business is unrealistic. Therefore, determining the exchange rate based on market is essential.
However, Costentinos Berhetesfa (PhD) does not agree with the above arguments. As to him, without the incoming of foreign banks and determining the exchange rate by market, foreign companies can come here to engage in the whole sale, retail, and import and export business. The new regulation itself created good opportunities and can attract foreign companies to come here and do business. But liberalizing the financial sector also further encourages them to do a lot.
He further said that determining the money exchange rate by market not only helps to attract foreign companies to invest here but also to stabilize the whole economy. Adding he said that in our country, market is conducted based on the black market exchange rate which disturbs the entire business system and to bring the long lasting solution, determining the exchange rate by supply and demand chain is essential.
Many agree that governing the exchange rate by market price might aggravate inflation but as to the financial professional person analysis, the existing market is already underway considering the exchange rate in the parallel market. Therefore, the society also has been familiar with such development and the pain that comes from the inflation only put pressure for the time being. To withstand the pressure due to the demand for foreign currency, the government should enhance its foreign currency garnering and preserving capacity.
If the value of one Dollar becomes 120 Birr by formal market, customers do not go to purchase Dollar in the black market. When there is sufficient hard currency in the market no person resort to go to the black market rather he/she goes to the formal market. Therefore, the government before starting to determine the Dollar /Birr exchange rate by market, it has to accumulate plenty of hard currency in the Banks.
Following the decision to determine the exchange rate by the market, if there is no sufficient hard currency in the banks, customers again will go to the black market to obtain Dollar which again poses market disruption. As to Costentinos, determining the exchange rate should be a must and if it happens at least the nation obtains 12 billion Dollars from the diaspora because they start to send their money to their relatives in the formal and legal market channel instead of the black market.
This again reduces illegal trade posed by black market and creates stability. The government revenue also will be increased. Supermarkets owned by foreigners also supply quality products with fair price to their customers but they may demand hard currency for their profit.
BY ABEBE WOLDEGIORGIS
The Ethiopian Herald April 28/2014
