Do local companies prepare themselves to coup up the imminent challenges?

Recently, the government introduced a new regulation and rules which allow foreign companies to engage in whole sale and retail trade in the country. Sectors previously deserved to the local businessmen now step by step are opened to the foreigners and the scheme is expected to improve the trade and transaction system of the country.

The regulation also opens the door to foreign businessmen to engage in import and export trade.

Fikadu Petros is a lawyer while reflecting his view in this regard he said that, when the newly introduced regulation with regard to trade and business is implemented fully, in addition to improving the trade system, enhances the nation competitiveness in the international market.

Costentininos Berhe (PHD) an economist working as lecturer at Addis Ababa University said that, in the very beginning inhibiting foreign business men from engaging in the wholesale and retail trade was wrong. He also said that the new regulation which allows foreign business men to engage in trade helps to 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. The involvement of foreign companies in whole sale and retail business though seems new in Ethiopia, it is common in the outside world. Even diaspora Ethiopians 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 in competency of local private sector. Though the government provided protection and incentive to the local business, they remained stagnant and failed to bring change in the business.

The government supports business men for the growth of local industries but if it is impossible, 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 the government is forced to open the market to foreign companies,” Said Fikadu.

“To date providing protection to local businessmen did not bring any benefit, even the subsidy is being used in appropriately” exclaimed Fikadu, 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 the consulting trade and business on his part noted that, the government measures taken to improve the trade system failed to meet the objectives there fore, it was resorted to find other options that is opening up the sector to foreign actors. In his view the decision taken by the government is wisely.

He further said that, the demand for whole sale and retail business is growing from time to time and, unless the business is supported by foreign actors it will be endangered. Currently the wholesale and retail business is monopolized by few local companies therefore, to make the sector competent, opening the sector to foreigners should be taken as a way out.

In the past, the government in order to stabilize the market established companies such as “alebejimla” 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 here whether it goes in line with the rules and regulation 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 business men 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, is not created by the mal performance of local traders. A financial professional who demanded to hold his name anonymous said that he believes that the introducing 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 therefore, 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 rate similar to the parallel market is essential and unless it is implemented bringing foreign investors here is unrealistic.

In the past, the government agreed with the American Wholemart huge company to do business here and started working but due to shortage of hard currency, because the government monopolistic policy, the company canceled its plan.

Therefore, as to him, inviting foreign companies should be coupled 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 come 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, Constentinos Berihe (Ph.D) does not agree by 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. He also said that, in our country market is conducted based on the black market exchange rate which disturb the entire business system and to bring the long lasting solution, determining the exchange rate by supply and demand is essential. Many agreed that, governing the exchange rate by market price might aggravate inflation but as to the financial professional person analysis, the existing market already is going by 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 with stand 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.

After deciding 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.


The Ethiopian Herald June 23/2024

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