Friday, April 04, 2008

The Ethiopian Economic Disparity in 2008

Fake gold, depreciating Birr, unofficial foreign exchange transactions, escalating prices of cement, prices of almost everything going mad . . . these are hot issues of interest to gossip corridors across the city. People seem to be at a loss of what to make of all the rumours, unable to determine the truth from the baseless.

That was of course up until last Tuesday, when the Prime Minister appeared before Parliament where it was highly anticipated that he would make sense out of the utter confusion spread around the capital and aggravated by the follow up raids by law enforcement agencies on about twelve currency black market shops.

Gossip corridors were not impressed with the Prime Minister’s explanation on any of these issues.

Why the government has acted unaware of the existence of overtly operating exchange shops across town and the clamp down on them still remains a mystery to many at the gossip corridor.

The threat that these currency dealers posed to the national economy, as claimed by the Prime Minister, was far from being taken seriously. Neither will the action taken against these dealers bring about the kind of result the government hopes to achieve; it will only drive these operators further underground, according to the general opinion at the gossip corridor.

The government was forewarned when it decided to grant permission for companies to import cement, using Franco valuta; a form of import that does not require the treasury commit foreign currency.

It was meant to allow construction firms to bring in cement for their requirement, while traders would import to distribute the cement to the local market. Government had hoped that it would identify and control such imports. Not many of Addis Abeba’s high-flying businessmen, however, were excited with the idea.

In fact, they proved reluctant to take advantage of the new policy, as they were worried that involvement in this would expose them to uncalled for attention by the government on how much they have in their foreign accounts, gossip claimed.

Thus, the field was left largely to foreigners; a year on, these people had to choose between investing whatever they have brought here in to the country, or taking the money out.

According to gossip, there emerged a new development in the region where demand for sugar in Somalia suddenly surged. Suppliers needed to be liquid to buy sugar from the international market in order to export sugar there.

Some at the gossip corridors attribute these factors as reasons for the sudden fallout of the Birr against the dollar - from 9.2 Br in December 2007 to 9.6 Br in mid-March 2008 - yet the dollar itself is fallingalarmingly against the basket of other currencies.

Such was also the case with the “parallel” market, which jumped from 9.3 Br against a dollar three months ago to 10.65 Br to the same just before the crackdown.

Others at the gossip corridors, however, relate this development to the emergence of a scandal at the central bank, where the national treasury is said to have paid hundreds of millions of Birr to buy fake gold.

They felt that Ethiopia’s reserve in gold has been compromised and this has shattered public confidence.

The apprehension of black market shop owners and the subsequent government bashing of businessmen and women does little to restore this, all according to gossip. The subject of interest at gossip corridors will remain the same for weeks as the Birr continues to fall.

No comments: