jimma university college of business and …...of master of business administration (mba) to the...

1

ASSESSMENT OF FOREIGN CURRENCY SHORTAGE AND ITS

IMPLICATION ON ETHIOPIAN ECONOMY: A CASE STUDY OF

THE IMPORT SECTOR

(A Thesis Submitted to School of Graduate Studies of Jimma University in Partial

Fulfillment of the Requirement for the Degree of Masters of Business

Administration)

By:

HENOK ZEREU REDA

JIMMA UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF MANAGEMENT

APRIL, 2016

ADDIS ABABA, ETHIOPIA

1

ASSESSMENT OF FOREIGN CURRENCY SHORTAGE AND ITS

IMPLICATION ON ETHIOPIAN ECONOMY

(A Case study of the Import Sector)

By:

HENOK ZEREU REDA

Under the Guidance of

Dr.WondaferahuMulugeta

And

AtoEsubalewAyalew

(A Thesis Submitted to School of Graduate Studies of Jimma University in Partial

Fulfillment of the Requirement for the Degree of Masters of Business

Administration)

JIMMA UNIVERSITY

MBA PROGRAM

APRIL, 2016

ADDIS ABABA, ETHIOPIA

A

DECLARATION

I, the undersigned, hereby declare that thisresearch work entitled “Assessment of Foreign Currency

shortage and its Implication on Ethiopian Economy: a case study of the Import sector” Submitted

by me to undertake a research in partial fulfillment of the requirements for the award of the Degree

of Master of Business Administration (MBA) to the School of Graduate Studies, Jimma

University, is my original work and the matters embodied in this research work has not been

submitted earlier for the award of any degree or diploma to any other university or institution and

all the reference materials referred in the process have been duly acknowledged.

Student Name Signature Date

HenokZereu ______________________ April 17, 2016

B

CERTIFICATE

This is to certify that the thesis entitle “Assessment of Foreign Currency shortage and its

Implication on Ethiopian Economy; a case study of the Import sector”, submitted to Jimma

University, College of Business and Economics to undertake a research in partial fulfillment of the

requirements for the award of the degree of Master of Business Administration (MBA), has been

prepared by Mr. Henok Zereu Reda under my guidance and supervision.

Therefore, we hereby declare that no part of this thesis has been submitted to any other university

or institution for the award of any Degree or Diploma and all the matters embodied in the thesis

have been duly acknowledged.

Name of Advisers Date Signature

1. Dr. WondaferahuMulugeta________________ __________________

2. AtoEsubalewAyalew ________________ __________________

C

DECLARATION

I hereby declare that this thesis entitled “Assessment of Foreign Currency shortage and its

Implication on Ethiopian Economy:a case study of the Import sector”,has been carried out by me

under the guidance and supervision of Dr. WondaferauMulugeta and AtoEsubalewAyalew

The thesis is original and has not been submitted for the award of any degree or diploma to any

university or institutions.

Researcher‟s Name Date Signature

_________________________ ___________________ ___________________

D

Acknowledgements First of all, I would like to extend my deepest gratitude to my advisor Dr. WondaferahuMulugeta

without whom undertaking the study would have been very much difficult. I would like to take this

chance to thank him for his support in giving me valuable ideas right from the inception of this

thesis to its completion. I also extendmy sincere gratitude to him for the critical and detailed

comments andsuggestions he gave me throughout the research process.

My second gratitude goes to my co-advisor AtoEsubalewAyalew who has always been responsive

to all my requests. He was so keen to give me his valuable ideas and professional comments on all

parts of my work. I also would love to take this chance to thank all bank trade finance officers and

managers who have been so enthusiastic and cooperative in the process of filling the

questionnaires, and all people who have contributed in making the study real.

.

Finally, I would like to send my special thanks to all of my friends and collogues who have been

very supportive to me in almost everything throughout the study period with lots of patience and

dedication. Dear friends, I can’t thank you enough!

E

Abstract

Foreign currency management is one of the most important tasks that any nation’s central bank

performs among others in assuring the healthy performance of its economy. The case is no

exception to Ethiopia. The research under the topic “Foreign currency shortage and its

implication on Ethiopian economy”, tries to answer questions on how a foreign currency shortage

affects the nation’s economy in general and the import sector in particular. Different variables

such as shortage (expressed as gap between demand and supply of FCY), causes and effect of the

shortage are deeply analyzed.

The researcher believes that this study will add on the knowledge of specific implications a foreign

currency shortage has on the Ethiopian economy. It will also be a starting point for a better

detailed study on the area. The study is conducted using both primary and secondary data. The

primary data was collected through administering structured questionnaire targeting 150

importers at 10 different banks. A 15 years import and export data has also been collected from

National Bank of Ethiopia. Results from both the primary and secondary data are analyzed using

SPSS statistical software and presented in tables and figures.

The findings from the study have showed that there is acute shortage of foreign currency caused

mainly of slow growth of the export as compared to imports of the country followed by increase in

government imports in line with the huge infrastructure projects being undertakings. Based on the

result of the study, enhancing the export and a parallel support of the manufacturing sector

producing export and import substitute items are among the recommendation by the researcher.

Key words: Foreign currency, Imports, Implication, effect

i

Table of Contents

Contents PAGE

DECLARATION ....................................................................... A

Acknowledgements ......................................................................................................... D Abstract ................................................................................................................................. E

ABRIVATIONS ..................................................................................................................... v CHAPTER ONE ....................................................................... 1

INTRODUCTION................................................................................................................ 1 1.1. Backgrounds of the study ........................................................................................ 1 1.2. Statement of the problem ........................................................................................ 2

1.3. Objective of the study .............................................................................................. 3 1.4. Research Hypothesis ................................................................................................ 3 1.5. Significance of the study .......................................................................................... 4

1.6. Scope and limitations of the study .......................................................................... 4 1.7. Organization of the study Paper ............................................................................. 5

CHAPTER TWO ...................................................................... 6

REVIEW OF RELATED LITERATURES ...................................................................... 6

2.1 Definition of key terms and concepts ........................................................................... 6 2.2 Theoretical literatures ................................................................................................... 6 2.2 Empirical literatures .................................................................................................... 12

CHAPTER THREE ................................................................ 17

RESEARCH DESIGN AND METHODOLOGY ........................................................... 17

3.1 Methodology of the study ............................................................................................ 17 3.1.1 Study Design .................................................................................................. 17 3.1.2 Sample size and sampling procedures......................................................... 17

3.1.3 Study Variables ............................................................................................. 18

3.2 Data collection technique ............................................................................................ 18 3.3 Data Analysis .......................................................................................................... 19 3.4 Ethical Considerations........................................................................................... 19

CHAPTER FOUR ................................................................... 20

RESULTS AND DISCUSSION ........................................................................................ 20

4.1 Socio-demographic characteristic of respondents .................................................... 20 4.1.1 Gender of respondents: ................................................................................ 20

4.1.2 Age of respondents:....................................................................................... 20

4.1.3 Age and Experience on the field of work of respondents .......................... 21

4.1.4 Educational level of respondents ................................................................. 22 4.1.5 Business of respondents ................................................................................ 23 4.1.6 Average annual FCY need of respondents.................................................. 25 4.1.7 Relationship between respondents’ business and their annual need ....... 26

4.2 Cause, effect and determinants of the shortage ........................................................ 27 4.2.1 Sufficiency of the annual FCY approved .................................................... 27 4.2.2 Timeliness of the annual FCY approved .................................................... 28

ii

4.2.3 Effect of the shortage on respondents’ business......................................... 29

4.2.4 Alternative mechanisms / ways of alleviating importers’ immediate FCY

need.............................................................................................................. 31 4.2.5 Compensation (offsetting) of expenses resulting from the shortage ........ 32

4.2.6 Effect of FCY shortage on inflation .......................................................... 33 4.2.7 Effect of FCY shortage on importers’ business expansion plan ............. 35 4.2.8 Time since which the shortage started to be felt ...................................... 37 4.2.9 Causes of the shortage ................................................................................ 37 4.2.10 possible recommendation of respondents ............................................... 40

4.3 Findings from secondary data .................................................................................... 42 4.2.1 Foreign exchange gap as difference between the import and export ....... 43

4.2.2 Relationship between Foreign exchange shortage and type of Import

items ............................................................................................................ 45

CHAPTER FIVE .................................................................... 48

CONCLUSIONS AND RECOMMENDATIONS ........................................................... 48 5.1 Summary of major findings ........................................................................................ 48

5.2 Conclusion .................................................................................................................... 50 5.3 Recommendations ........................................................................................................ 51

Appendices I

Appendix 1: Questionnaire prepared for Importers and wholesalers, manufactures and service

providers ......................................................................... II

Appendix 2: Questionnaire prepared for Importers and wholesalers, manufactures and service

providers – Amharic version ....................................... VII

Appendix 3: Import values by item .......................................................................... XII

Appendix 4: Agregate import and export values with gross foreign exchange reserve

............................................................................................................................... XIV

Appendix 5: Export values by item ......................................................................... XVI REFERENCES ................................................................... XVIII

iii

List of Tables

page

Table 4.1: Gender ofrespondents ……………………………………………………….……...20

Table 4.2: Age of respondents ……………………………………………………………….....21

Table 4.3: Age and experience on the field of work of respondents………………………..….21

Table 4.4: Educational Level of respondents ……………………………………………..……22

Table 4.5: Field of work of the respondents…………………………………………………....24

Table 4.6: Average annual FCY need of respondents ……………………………………….....25

Table 4.7: Relationship between respondents‟ field of business and their annual FCY need …26

Table 4.8: Sufficiency of FCY approved ………………………………………………………28

Table 4.9: Timeliness of the approval ……………………………………………………28

Table 4.10: Time of waiting in the Queue ……………………………………………………..29

Table4. 11: Ways FCY shortage affecting the business ……………………………………….30

Table 4.12:Availability of alternatives mechanisms of importers‟ immediate FCY need …...31

Table4. 13: Alternatives for Immediate FCY need …………………………………………...31

Table 4.14: Ways of compensating expenses resulting from the FCY shortage and subsequent

actions taken in that regard ……………………………………………………………….…...33

Table 4.15: Effect of FCY shortage on Inflation………………………………………….…..34

Table 4.16: Effect and magnitude of the foreign currency shortage on inflation ……………..34

Table 4.17: Effect and magnitude of the effect of FCY shortage on expansion plan of

respondents‟ business ……………………………………………………………………….....35

Table 4.18: Layoffs made by respondents‟ business due to FCY shortage …………………...36

Table 4.19: Time since the problem occurred ………………………………………………...37

Table 4.20: Causes of the shortage ……………………………………………….…………...38

Table 4.21: Expectation of respondents for a solution on the shortage …………………….....40

Table 4.22: Possible recommendations of respondents ………………………………………..41

Table 4.23: Aggregate annual Import and Export figures ……………………………………..43

Table 4.24Gross difference between aggregate annual Import and Export…………………..45

Table 4.25: Percentage contribution of items to the total annual import of Ethiopia…………..46

iv

Table 4.26: Percentage contribution of locally substitutable items to the total annual import of Ethiopia

…………………... ……………………………………………………………………………47

List of Figures

Page

Figure: 4.1 Educational level of respondents …………………………………………………. 23

Figure 4.2: Business of respondents …………………………………….……………………..24

Figure 4.3: Relationship between respondents‟ field of work and annual FCY need. …………27

Figure 4.4: Ways of foreign currency shortage affecting Importers‟ business ………………...30

Figure4. 5: Proportion of responses on causes of the foreign currency shortage ……………...39

Figure 4.6: Possible recommendation of respondents in alleviating the FCY shortage ……….42

Figure 4.7: Trends of annual Export and Import transaction …………………………………..44

v

ABRIVATIONS

AM L=Anti Money Laundering

CFT = Counter Financing Terrorism

CPI = Consumer Price Index

CSA= Central Statistical Agency

FCD = Foreign Currency Deposit

FCY = Foreign Currency

FY = Fiscal Year

GDP = Gross Domestic Product

GNP = Gross National Product

GTP = Growth and Transformation Plan

IMF = International Monetary Fund

KII = Key Informants Interview

NBE = National Bank of Ethiopia

PPP = Purchasing Power parity

WTO = World Trade Organization

1

CHAPTER ONE

INTRODUCTION

1.1. Backgrounds of the study

According to the World Bank (2004), stable and competitive real exchange rates are by far the

most important determinant of profitability of non-comparative advantage exports such as

manufactured exports. This is due to the fact that this in turn determines the trade balance that an

economy may be expected to show.

Based on a study conducted on the foreign currency market in Ethiopia, the foreign currency

shortage has had an impact on how importers behave to tackle their foreign currency need in

excess of what the market can supply. To state it explicitly “In any given period, unfulfilled

demand for foreign exchange will give rise to illegal foreign exchange activities such as smuggling

or illegal sale by successful bidders .” (Patterson, 2001)

Having significant percentage of import volume in most of the sectors of the economy, the

Ethiopian economy seems to be stuck in the middle of advancing forward backed with the

establishment of root level infrastructure and the severe shortage of hard currency to feed these

enormous mega projects. In connection to this, IMF report on Ethiopia (2014: pp 3) noted that

“While Ethiopia has achieved some success over the past decade, sustaining the

ambitious economic strategy is becoming increasingly challenging. The

macroeconomic picture is mixed with robust economic growth and inflation in single

digits coexisting with negative short term real interest rates, an overvalued exchange

rate, and low reserve cover in months of imports.”

Advancement in infrastructures and other related mega projects will also mean transformation of

knowledge from foreign based contractors to that of local ones. In addition, the companies and

plants that are to be erected will contribute a lot on the employment opportunity that the economy

creates. And lastly, all the improvement on infrastructure, the knowledge transfer and the

2

employment opportunity will definitely increase individual income level and thereby improve the

living standard of the society.

However, all the above mentioned goods (the foreign direct investment, the job opportunity and

the resulting income growth) seem to be in jeopardy due to the acute shortage of hard currency

which the research will try to address this issues in the upcoming section in more detailed manner.

1.2. Statement of the problem

Being a predominantly agrarian economy, Ethiopia is known for its long lived trade deficit

(negative balance of payment) in its international trade. The situation is the result of a low foreign

currency receipt whether through remittance or from its export of primary products,

mainlyagricultural products and it‟s ever increasing expenditure on import of goods ranging from

food itemsand consumer goods to heavy machineries.

According to the country commercial guide of 2014 of the US chamber of commerce, foreign

currency shortage continues to be a challenge for importers in Ethiopia. On the other hand, the

IMF (2014: pp 12) report states the foreign exchange situation of the country as “… Developments

in thefirst three years (2010/11–2012/13) of the GTP suggest that the investment drive in the

priority projects through directed domestic credit is squeezing the availability of credit and foreign

exchange for the rest of the economy.”

So what are the implications aforeign currency shortage has created on the Ethiopian economy?

Based on available evidences and the extent of the researcher‟s understanding of the real situation

on the country, the following could be counted as the main problems of shortage for foreign

currency reserve.

Widening balance of payments deficit, a shortage of foreign currency reserves as a result of

huge government spending on mega projects that demand huge foreign currency.

Inadequate foreign currency reserve aggravates economic turmoil that might result from

both internal and external causes (Kitinge, 2014).

3

Failure to meet planed economic strategies and objectives that rely on injection of hard

currency (IMF report, 2014), and

Affecting the IMPORT sector of the economy under which significant number of people

made their livelihood thereby contributing to the national unemployment level.

1.3. Objective of the study

The main objective of this research is Assessing the Foreign Currency shortage and it‟s

Implication on Ethiopian Economy. In order to achieve the aforementioned main objectives, the

study will attempt to,

Analyze the trend of gap between demand for and supply of foreign currency in the country

during the study period (2000-2015);

Investigate the possible causes of foreign currency shortage.

Identifying relationship between availabilityof foreign currency and the volume of Import made

across the study period.

Examining the impact of foreign currency shortage on importers.

Draw policy recommendations to address the acute shortage of foreign currency in the country

based on the findings of the study.

1.4. Research Hypothesis

Based on the above specific objectives, the following hypotheses are drawn:

Hypothesis 1: There is positive relationship between foreign currency shortage and import

volume.

Hypothesis 2: Foreign currency shortage has inverse relationship with export volume.

Hypothesis 3: There is a relationship between type of goods/services being imported and

foreign currency amount required.

Hypothesis 4: There is a relationship between foreign currency shortage and its approval and

allocation procedure followed by Commercial Banks.

4

1.5. Significance of the study

The significance of this study is to add knowledge on what is already known as to the level of

foreign currency shortage in Ethiopia, with specific focus on effects of hard currency shortage on

the import sector.

Thus far, few studies have been conducted regarding foreign currency behaviour of Ethiopia.

These include among others, the study conducted byMainardi (1991), Patterson (2001). As part of

undertaking the study, the researcher has tried to review some of such works of related topics and

none of them have triedto address the issues under the specificobjectives.For instance, the study

undertaken by Patterson (2001) on the foreign exchange rate unification of Ethiopia focused on

how the exchange rate reunification made by the Ethiopian government intendedto avoid the

parallel markets. On the other hand, the study by Mainardi (1991) focused on the relation of

foreign currency shortage with growth and inflation and cross county comparison was made based

on six socioeconomic standards.

Hence, this study differs from the previous ones for it focuses on the implication of the foreign

exchange shortage with specific focus on the import sector of the country and to some extent

theexport sector using both primary and secondary data. Therefore, we believe that this study will

narrow the existing gap in literature in the country and be even valuable source for further studies

on the area.

1.6. Scope and limitations of the study

The scope of this study is limited to examining the implication foreign currency shortage has on

the import sector in Ethiopia for the period 2000-2015.The impact of foreign currency shortage

onother real variables and other sectors is beyond the scope of this study. It is not also the intention

of this study to measure the magnitude (or effect, if any) offoreign currency shortage on the

economy in general and the import sector in particular. The study tries to showonly the existence

of the implication.

Due to issue of discretionand confidentiality, all the commercial bankswere unwilling to provide

the data on the demand and supply of foreign currency in the country.As a result, we have tried

5

toobtain primary data on the demand and supply of foreign currency only from the importers

side.Moreover, though attempt was made to fill this gap with secondary data on aggregate imports

and exports of the country from National Bank of Ethiopia, the fact remains that primary data is

collected from importers side only may still raise the issue of bias in sampling

1.7. Organization of the studyPaper

The paper is organized as follows.Chapter two deals with the review of related literature (both

theoretical and empirical, which serve us as conceptual framework for the study. Key terms and

concepts are also defined in this literature review section.On chapter three, the data types and

sources, data collection methods, and methodology employed to address the study objectives are

presented. Chapter four discusses the major findings of the study with analysis of the data

collected through both primary and secondary data collections methods. The last chapter presents

the conclusion and recommendations made on the bases of the finding from the study.

6

CHAPTER TWO

REVIEW OF RELATED LITERATURES

2.1 Definition of key terms and concepts

o Currency: A generally accepted form of money, including coins and paper notes, which is

issued by a government and circulated with in an economy. (www.investopedia.com)

o Foreign currency: A currency other than a country‟s own currency.

o Import: Purchase of goods and services with currency other than a country‟s own currency

across national boundaries.

2.2 Theoretical literatures

Since the timeof ancient civilization, people have been trading between and among themselves

even though it wasn‟t like what trading now looks. As most marketing and other related literatures

tell us, it first took the form of bartering (Kotler 2010),www.jamesrobertson.com. i.e., exchange of

one commodity by another. In this case, the value of the commodities being traded may be unequal

which makes the ancient time trade somewhat harder to measure and even unfair to one of the

parties.Since then, the trade between and among people has shown significant improvements both

in terms of the commodities involved and the volume of transaction.

Today, with the establishment of modern trade practices and introduction of common currencies,

trading has became very simple and made the measurement of an item being traded the same value

internationally even though in a relative term (K .Rose, 2002).This is due to the fact that countries

have their own currency and trading between two countries requires a common trading currency by

which the value of the commodity is expressed.

Foreign Exchange reserve requirement

For a country with a fixed exchange rate and freecross-border capital flows, a large stock of

reserves maybe required to maintain the desired exchange rate. In thatcase, reserves help limit

foreign exchange rate risk as wellas ensuring the availability of foreign currency to facilitatecross-

http://www.investopedia.com/

7

border transactions. The foreign exchange amount that a country requires is determined by the

level of import it made relative to its export. The value of hard currencies is further dependent on

the exchange rates that is applied on it. According to Mankiw 2001, the exchange rate between two

countries is the price at which residents of those countries trade with each other.

Hence maintaining a reasonably enough amount of foreign currency reserve is of paramount

importance. According to 2014/2015 annual report of National Bank of Ethiopia which is the

central bank of the county, Net foreign assets of the banking system at the end of 2013/14 recorded

a reserve drawdown of USD 91.4 million, due to decrease in net foreign assets of commercial

banks by USD 142.9 million. As a result, the gross international reserve of the country was

adequate to cover only 2.3 months of the countries import of goods and non factor services. On

the other hand, as per the annual report of the Ethiopian Economic Association, the country‟s

foreign exchange reserve was also heavily depleted from USD 1.3 billion in 2006/07 to USD 952

million in 2007/08. In other words, the available foreign exchange reserve was enough to finance

less than 1.5months of imports of goods and non-factor services which dropped from about 2

months in 2006/07.This is below standard of the International Monetary Fund (IMF).

Countries increase their hard currency reserve through export transaction, loan, Aid and through

remittance. For any developing country like Ethiopia, remittances can be a critical tool, assisting

not only with local, grass-roots development but also contributing significantly to a country‟s

entire economic health. In part, remittances can build foreign currency reserves, address balance of

payments deficits, and enable investment in projects involving infrastructure, health, sanitation,

and education. Ethiopia benefits tremendously from the support of its Diasporas, particularly from

its rural population who have migrated in search of temporary employment in the Middle East.

Often equivalent to at least 50 percent of the recipient‟s monthly income, remittances improve

quality of life, enhance health and nutrition, and fund investment in local economies.Although

remittances to Ethiopia bring into question existing foreign exchange controls and create possible

challenges to the country‟s existing anti–money laundering and countering the financing of

terrorism (AML/CFT) regime, these funds are undoubtedly positive for the recipients and the

Ethiopian economy.

8

Adequate foreign exchange reserves are an important factor of any well-managed economy. These

reserves help cushion the effects of economic shocks, domestic or foreign.

The Real Exchange Rate and Trade Balance

The balance of trade forms part of the current account, which includes other transactions such as

income from the net international investment position as well as international aid. If the current

account is in surplus, the country's net international asset position increases correspondingly.

Equally,adeficitdecreases the net international asset position.

(Source:Investopedia http://www.investopedia.com/ask/answers/03/110603.asp#ixzz3vJL8bBUq )

The trade balance is identical to the difference between a country's output and its domestic demand

(the difference between what goods a country produces and how many goods it buys from abroad;

this does not include money re-spent on foreign stock, nor does it factor in the concept of

importing goods to produce for the domestic market).

Measuring the balance of trade can be problematic because of problems with recording and

collecting data. As an illustration of this problem, when official data for the entire world's

countries are added up, exports exceed imports by almost 1%; it appears the world is running a

positive balance of trade with itself. This cannot be true, because all transactions involve an

equal credit or debit in the account of each nation. The discrepancy is widely believed to be

explained by transactions intended to launder money or evade taxes, smuggling and other visibility

problems. However, especially for developed countries, it is likely the transaction statistics are

accurate.

(Source:Investopedia http://www.investopedia.com/ask/answers/03/110603.asp#ixzz3vJL8bBUq )

What macroeconomic influence does the real exchange rate exert? To answer this question,

remember that the real exchange rate is nothing more than relative price. Just as the relative price

of hamburgers and pizza determines which you choose for lunch, the relative price of domestic and

foreign goods affects the demand for these goods, Mankiw (2001).

Suppose first that the real exchange rate is low. In this case, because domestic goods are

relativelycheap, domestic residents will want to purchase fewimported goods: they will buy Fords

rather thanToyotas, drink Coors rather than Heineken, and vacationin Florida rather than Europe.

https://en.wikipedia.org/wiki/Current_account

https://en.wikipedia.org/wiki/Net_international_investment_position

Investopedia

http://www.investopedia.com/ask/answers/03/110603.asp#ixzz3vJL8bBUq

https://en.wikipedia.org/wiki/Credit_(finance)

https://en.wikipedia.org/wiki/Debit

Investopedia

http://www.investopedia.com/ask/answers/03/110603.asp#ixzz3vJL8bBUq

9

For the samereason, foreigners will want to buy many of ourgoods. As a result of both of these

actions, the quantityof our net exports demanded will be high.The opposite occurs if the real

exchange rate ishigh. Because domestic goods are expensive relativeto foreign goods, domestic

residents will want tobuy many imported goods and foreigners will wantto buy few of our goods.

Therefore, the quantity of our net exports demandedwill be low.We write this relationship between

the real exchange rate and net exports asNX = NX (e).

According to Rudi Dornbusch, balance of payment is the record of transactions of residents of a

country with the rest of the world. The balance of payment comprises of two accounts the current

and capital accounts. The former being record of trade in goods and services as well as transfer

payments while the later records sale of assets such as bonds stocks and lads of

➤the real exchange rate is related to net exports. When the real exchange rate is lower, domestic

goods are less expensive relative to foreign goods, and net exports are greater.

➤the trade balance (net exports) must equal the net capital outflow, which in turn equals saving

minus investment. Saving is fixed by the consumption function and fiscal policy; investment is

fixed by the investment function and the world interest rate.

Trade balance and Inflation The literature on inflation has been widely discussed bytheorists. In the literature, three main types

of inflation havebeen prevalent namely demand-pull inflation, cost-pushinflation, and structural

inflation (Dwivedi, 2009:546 -551,Vaish 2011, 499 - 503).The demand-pull inflation occurs when

the aggregatedemand increases much more rapidly than the aggregatesupply. The increase in

aggregate demand may be caused bymonetary factors (i.e. increase in money supply), and

realfactors (increase in demand for real output). That is, increasein money supply in excess of

output is one of the mostimportant factors causing demand-pull inflation. In addition,the real

factors that cause inflation include taxes andgovernment (public) expenditure (Dwivedi, 2009: 546,

Vaish,and 2011:499).The cost-push inflation is generally caused by monopolistic groups of

society, like labor unions and firmsin monopolistic and oligopolistic market setting. Stronglabor

unions often succeed in forcing money wages to go upcausing increase in prices. This kind of rise

in price level iscalled wage-push inflation. Also firms enjoying monopolypower have also been

found using their monopoly power torise prices which in turn causing a rise in the general

10

pricelevel. This kind of inflation is called profit-push inflation.Another kind of cost-push inflation

is said to be caused bysupply shocks (decrease in the aggregate supply). This iscalled supply shock

inflation which in particular attributed to,for example, food prices shoot up due to crop failure,

andincrease in prices of some key industrial inputs. That is, thisrise in prices may be caused by

supply bottlenecks in thedomestic economy or international events (generally wars)causing

bottlenecks in the movement of traded goods and causing shortage of supply (Dwivedi, 2009: 548,

Vaish,

Trade balance and Investment

To clearly understand how foreign currency shortage (negative trade balance) is related to

investment in an economy of a nation, it‟s very much helpful to see the matter at different levels

and scenarios as discussed under.

Personal Savings level:

Consider your own income as the value of goods and services that you produce and “export” to

others, and what you spend on food, shelter and other items as “imports” into your home. When

you spend the same amount that you earn, your net exports are zero. You also have no leftover

savings to invest. If you spend more than you earn, you must borrow money. If you spend less than

you earn (have a positive trade balance) you build up savings.

Personal deficits:

It is possible to have a positive savings rate, but one that is lower than your investments. For

example, if you are making an investment in your college education and have a part-time job, you

might be able to build up your savings account, but it is likely that you are investing more in your

education than you are saving. The difference is made up in school loans. This is sensible, because

you expect that the investment will lead to more income in the future. At that point you will

increase your savings rate as your income rises (from the value of the service you are able to

“export”).

Country Trade Deficits:

11

Similarly, on a country level, a trade imbalance may not necessarily be a bad thing, but the

associated borrowing will need to be paid back eventually. Furthermore, if a country spends

borrowed foreign funds in ways that do not yield long-term productive gains, its solvency may be

questioned. The last positive U,S, trade balance of the 20th century was in 1975. For many years,

until the early 2000s, the persistent U.S. negative trade balance was not a concern.

One insight from the national saving and investment identity is that a nation‟s balance of trade is

determined by that nation‟s own levels of domestic saving and domestic investment. To

understand this point, rearrange the identity to put the balance of trade all by itself on one side of

the equation. Consider first the situation with a trade deficit, and then the situation with a trade

surplus.

In the case of a trade deficit, the national savings and investment identity can be rewritten as:

Trade deficit = Domestic investment – Private Domestic saving – Government savings

(M-X) = I – S – (T-G)

In this case, domestic investment is higher than domestic savings, including both private and

government savings. The only way that domestic investment can exceed domestic savings is if

capital is flowing into a country from abroad. After all, that extra financial capital for investment

has to come from someplace.

Now consider a trade surplus from the standpoint of the national savings and investment identity:

Trade surplus = Private domestic saving + Public saving – Domestic Investment

(X-M) = S + (G – T) – I

In this case, domestic savings (both private and public) is higher than domestic investment. That

extra financial capital will be invested abroad.

This connection of domestic savings and investment to the trade balance explains why economists

view the balance of trade as a fundamentally macroeconomic phenomenon. As the national saving

and investment identity shows, the trade balance is not determined by the performance of certain

sectors of an economy, like cars or steel. Nor is the trade balance determined by whether the

12

nation‟s trade laws and regulations encourage free trade or protectionism (see Globalization and

Protectionism).

Trade balance and Unemployment

Unemployment is a situation that could be experienced in almost any economy and any time in

which individuals who are able and willing to work are unable to be employed and get the wage

that other with similar capacity are doing it. (Roomer, 1996)

Unemployment is central issue of macro economics with two basic issues. One of the issues is

determinants of unemployment over average extended periods. The important concern here is

whether this unemployment is due to genuine failure of a market to clear, and if so what is the

cause and consequences of it (Romer, 1996).

As one can easily understand it on what is discussed on the “Trade balance and Investment” sub

topic above, the ultimate effect of poor domestic investment level is aggravating the

unemployment situation of a country.

2.2 Empirical literatures

Based on the review made by the researcher, several studies have been carried out on matters

related to foreign currency shortage or negative trade balance. In fact these studies are made on

economies of other countries. Moreover, these studies focus on multiple of variables such as

Foreign Direct Investment (FD I), Inflation, Gross Domestic Product (GDP) and Trade volume.

Taking the fact that the purpose of this study is to assess implication of foreign currency shortage

on the economy of Ethiopia with a focus on it import sector, the researcher has tried to review

some of the studies conducted on other developing countries by foreign scholars.

One of such studies was that of Mirakhor and Zaidi, conducted in 2006. Their study was focused

on theimplications foreign currencydeposits (FCDs) for internationalliquidityshortagesin Pakistan.

The analysisfocuses on how the large volumef FCDs and thespecificinstitutional characteristics

ofthosedeposits have made the Pakistaneconomy highlyvulnerable to exogenousshocks.The

13

analysisshows that FCDs createdanother channel forgovernmentborrowing,and fiscal sustainability

in a "closed" systemmay be verydifferentfromsustainabilityin a more "open" system.

Their study has analyzed how the large volume of short-term foreign currency deposits and the

specificinstitutionalcharacteristicsof those deposits had made the

Pakistaneconomyhighlyvulnerableto exogenous shocks. While emphasizing the importance of

linking capital account liberalization to the appropriatesequencingof domestic financial

reforms(and bank supervision) the paperalso focusedon the problem that theFCD schemehad

createdyetanother channelfor governmentborrowing. The analysisshowedthatfiscalsustainability

in a "closed" systemmay be very differentfromsustainability in a more" open" system, and thereis a

need to thinkof these issues in terms of total balance sheet vulnerability. The main reason for the

reliance on short-termcapital had been the large fiscal deficits,and thereis a continuingneed for

strengtheningfinancial policies to promote internaland external stability.The authoritiesshould

continueto integratethe economywithinternationalfinancialmarkets, because foreigncapital

inflowscan help to finance investmentand provideopportunity.Mirakhorand Zaidi, 2006.

On another study made on this same country, Abbas and Raza 2013, they have tried to show the

effect of trade deficit on the economy of the nation. On their study covering a 24 year secondary

data from World Bank data bank, the independent variable –trade deficit has been related with two

determinants of the economy such as the Gross Domestic product and FDI Exchange rate which

were the dependent variables.

Based on their research result, the researchers have concluded that there are many product which

causes of increase in foreign reserve. There are few high value import like defense and medical

machinery, petroleum & petroleum products, and chemicals operates required a large amount of

foreign reserves. Pakistan does not have healthy atmosphere for foreign direct investments as

compare to others like India china Malaysia Bangladesh. Political instability, economic condition,

high inflation, and lower gross domestic saving (Abbas &Raza, 2013).

On yet another study, conducted on the world‟s newest country and our neighboringcountry South

Sudan,(Emmanuel PitiaZachariaLado, 2015) it tried to state the relationship that existed between

inflation and exchange rate (one factor for trade deficit) and whether there is a feedback effect

between the two variables.

14

Using data collected for series of months covering August 2008 -2011, the researcher has stated

his finding. The results revealed that therehas been a unidirectional link running from exchange

rate toconsumer price index in the country. This means thatexchange rate has the information

about changes in Consumer Price Index (CPI) inthe country but not the other way round. Although

exchangerate is seen to be the cause of CPI changes in the country, there is need to understand that

exchange rate is a symptomof deep economic and/or financial crises caused by crises inthe

governance and/or insecurity situation in the country.Poor governance manifests itself in different

forms includinglack of production in agricultural sector (both arable andanimal).

Even if the research was unable to find studies conducted on foreign currency shortage or related

issues with particular effect on the Ethiopian economy, lots of facts has been assessed from local

magazines ,news papers, periodicals and reports of global organizations such as the IMF and

World Bank.

For instance, the 2015 World Bank Group report revealed the level of foreign currency shortage in

the following detailed way. According to the report the chronic current account deficit deteriorated

in 2013/14 due to trade balances and decliningtransfers. The current account deficit (including

official transfers) reached 8.6 percent of GDP up from5.3 percent in 2012/13. This was caused by

the large imbalance in import and export of goods and services, which worsened from 16.5 percent

to 17.8 percent of GDP. The trade deficit was driven by poor export performance and large

external debt financed imports of capital goods for public investment programs. Private and

official transfers, one of the largest external resources to Ethiopia, accounted for 7.4 and 2.1

percent of GDP, have also declined in 2013/14 from 8.2 and 3.2 percent GDP in 2012/13,

respectively. Official transfers tended to decline with fiscal stress in developed countries. The fall

in oil prices is expected to improve the current account deficit by 1.5 percentage points in FY15.

The current account deficit was financed through external borrowing and FDI as well as the

drawdown of international reserve by 0.2 percent of GDP. Foreign exchange reserves are low at

about 1.7 months of imports (the following year import) in November 2014. According to recent

data from NBE, reserves have increased to 3.2 months in December on account of the sovereign

bond issuance. The external sector is vulnerable to terms of trade shocks which the government

need to take the necessary measure to increase the country‟s resilience to shock. Though increased

external borrowing could be a way to ease the reserves constraints, borrowing (like Eurobond)

15

comes at relatively high cost exposingthe country to debt service obligations. Goods exports

showed positive growth in 2013/14 despite the fact that it remained far below its historical growth,

but the most recent developments in export performance are again a cause of concern.

Regarding the export goods performance of the country, World Bank group‟s report shows that an

increase of 5.8percent was registered in 2013/14 from its decline of 2.5 percent in2012/13. In the

past decade, export growth had averaged20 percent per year. Export volumes improvedin 2013/14

but negative price effects are still present. Service export grew by 11.3 percentmainly due to an

improvement in the number ofpassengers and cargo services of Ethiopian Airlines(EAL). Overall,

since 2010/2011, Ethiopian exportshave been on a declining path in percent of GDP. In addition,

in nine month of 2014/15,merchandise export declined by 3.0 percent against the same period of

same year. The declining trend wasobserved in the fourth quarter of 2014 and first quarterof 2015

as a result of significant dropin the prices of oilseeds, leather products, pulses, gold, chat, meat and

flowers as well as decline in the volumeof live animals, gold, oilseeds, and chat. Despite theprice

of coffee rose significantly, the volume of exportremained the same as nine months of last fiscal

year.(World Bank Group, 2015)

Faster growth in goods imports contributed to the deteriorating current account balance in2013/14.

Imports of goods increased by 19.7 percent compared to 3.7 percent growth in 2012/13. Aprimary

driver of growth was the 26 percent capitalgoods imports that are associated with

government‟slarge infrastructure investment activities. In terms ofshare in GDP, capital goods

accounted for 8.2 percentof GDP (far higher than earning from goods export),and consumer goods

import represented 7.0 percentof GDP in 2013/14. On the other hand, fuel and intermediate goods

constituted 4.6 and 4.1 percentof GDP (Figure 1.5.6). It emerged that all major categoriesof

imports increased in 2013/14. Despite theshare of services import decline, it grew by 8

percentfrom 14 percent in 2012/13. In the nine months ofFY15, goods imports grew by 21.3

percent mainlyas a result of the 47.5 and 19.3 percent increases incapital and consumers good

imports, respectively;fuel imports declined by 17 percent following thedecline in the global oil

prices.

The real effective exchange rate continued to appreciate into 2014/15. The real exchange

rateappreciated by 22.5 percent (y/y) at the end April2015 showing a cumulative appreciation of

16

71 percentsince the nominal devaluation in October 2010(Figure 1.5.8). Since the US$ sharply

appreciatedover recent months and the Birr is managed against the US$, Ethiopia is on an

appreciation path againstall currencies that are depreciating against the US$.This is because the

Birr is closely managed against theUS$. The de facto exchange rate arrangement is classifiedas a

crawl-like arrangement by the IMF (2013b).The authorities describe it as a managed float with

nopredetermined path for the exchange rate. The annualpace of nominal depreciation, however,

has been stableat 5 percent in recent years. Moreover, Ethiopia continuedto experience a positive

inflation differentialrelative to major trading partners. An appreciatedcurrency does not help

improving export competitivenessand is a concern for the economy in a situationof exports falling

again over the period of only oneyear. Maintaining a competitive exchange rate is animportant

component of maintaining external competitiveness(World Bank, 2014a).

17

CHAPTER THREE

RESEARCH DESIGN AND METHODOLOGY

3.1 Methodology of the study

3.1.1 Study Design

In order to achieve the objectives of the study, a combination of quantitative and qualitative

methods was employed to collect data required to determine how shortage of foreign exchange

affects the performance of importers in Ethiopia and to identify other bottlenecks related to

regulation of the NBE and the process of obtaining foreign exchange from their client commercial

banks. For the quantitative component, a cross-sectional survey that involved importers in import

and wholesale goods, manufacturing and service providing business was employed. In the

qualitative assessment, Key informants interviews (KIIs) were conducted with officials in the NBE

and private banks as well as selected importers.

Besides, secondary data including the trend of import and export in the country for the past fifteen

years (2000-2015) were collected from the NBE (2014/15) annual report and were thoroughly

reviewed to complement the primary data in order to address the five specific objectives of the

study. The different data sources of the study allowed triangulation of data yielding more valid

results. Utilization of the different data sources allowed the researcher to make valid conclusions

and recommendations in order to improve the shortage of foreign exchange leading to positive

outcomes and impacts on the business importers are engaged in.

3.1.2 Sample size and sampling procedures

This study was conducted in Addis Ababa City Administration. Sample size for the study was

determined based on purposive sampling of private commercial banks, their branch banks, and

proportional allocation of sample respondents to the branch banks. The sampling procedure was

multi-staged. Based on these requirements, the final sample size for questionnaire survey was

18

determined to be 150 based on distributions at the branch bank level. This total sample size was

then allocated to each of the ten private commercial banks.

The primary sampling unit was private commercial banks providing foreign currency to importers

followed by their respective branch banks. Accordingly, out of the fourteen private commercial

banks in the country, ten of those undertaking foreign banking operation at their branch level

i.e.,Awash International Bank (AIB), Bank of Abyssinia (BOA), Berhan International Bank (BIB),

Cooperative Bank of Oromia (CBO) DashenBank (DB) Debub Global Bank, (DGB), Lion

International Bank (LIB), Nib International Bank (NIB),United Bank (UB) and Zemen Bank were

purposely selected. Considering the uniform foreign currency approval procedure that these banks

apply to all their respective branches in to consideration, one branch of each operating

inAddisAbaba were selectedbased on the size of the import credit beneficiary population. Hence, a

total of 10 private commercial bank branches were included in the study. Finally, based on

proportional allocation of sample respondents to each branch banks, 15 respondents were selected

randomly from importers, which are clients of the 10 branch bank, giving a total sample size of

150.

3.1.3 Study Variables

The survey collected information on socio-demographic, Average annual foreign currency need of

importers; relationship between respondents business and their annual foreign currency need;

sufficiency of the annual foreign currency approved by their client banks; timeliness of approval;

the effect of the shortage on respondents‟ business, on inflation andon importers‟ business

expansion plan; alternative mechanisms of alleviating importers‟ immediate need forforeign

currency; compensation of expenses resulting from the shortage; time since when the shortage was

felt; and principal causes of the foreign currency shortage

3.2 Data collection technique

Quantitative data was collected using questionnaires that were translated into Amharic. The

questionnaire consisted of three parts (see Annex II). The first part consisted of questions related to

the socio-demographic characteristics of the respondents; this part describes the gender

combination, age group, marital status and literacy level. The second part is consisted of questions

addressing the issue of shortage of foreign currency. The third part contains questions addressing

19

the cause and, effect of the shortage. This part also contains questions with regard to possible

recommendations in alleviating the shortage,

Senior banks staff who are believed to be Key Informants were also interviewed regarding the

international trade operation of their respective banks in general and the current foreign exchange

situation in particular.

3.3 Data Analysis

Quantitative data were entered into a data template created for this analysis using SPSS computer

software. Data entry, cleaning and analysis was carried out by the researcher himself. Relevant

cross tabulations, graphs and charts were produced as appropriate.

3.4 Ethical Considerations

An introduction letter addressed as “to whom it may concern” was written by Jimma University,

Business and Economics College which the researcher was able to use it to the respective branch

banks and approval was obtained from these entities accordingly. Respondents were informed

about the study, objectives and ethical procedures prior to being engaged. Data collection began

once verbal consent was obtained from a participant after reading out a consent section for each

data collection method. It was made clear to every respondent that they had the right to refuse to

respond to any of the questions. Moreover, respondents were told that they don‟t need to write

their name on the questionnaire.

20

CHAPTER FOUR

RESULTS AND DISCUSSION

4.1 Socio-demographic characteristic of respondents

4.1.1 Gender of respondents:

Even if it has no direct relationship with the study variables and no implication was inferred from,

gender of respondents was the first socio –demographic characteristic analyzed and presented on

table 4.1 below. Nearly 81% of the respondent happens to be male and the rest about 19% female.

Table 4.1 Gender of respondent

Gender Frequency Percent Valid Percent Cumulative

Percent

Female 26 19.1 19.1 19.1

Male 110 80.9 80.9 100.0

Total 136 100.0 100.0

4.1.2 Age of respondents:

The age distribution of respondents collected via questionnaire is presented in Table 4.2. As can be

seen on the table below, close to half of the total numbers of respondents were found to be above

the age of 40. This could imply that most of the respondents are old enough to view their work

environment from the general economic condition of the country and foreign exchange shortage

angel and give reasonably dependable response to the questions. For further, crosschecking of the

above mentioned implication of the age analysis, cross variable analysis is made between age of

respondents and experience on the field of businessthey are engaged in.

21

Table 4.2: Age of respondents

Age of respondents Frequency Percent Valid Percent Cumulative

Percent

20-25 7 5.1 5.1 5.1

26-30 30 22.1 22.1 27.2

31-40 38 27.9 27.9 55.1

above 40 61 44.9 44.9 100.0

Total 136 100.0 100.0

Source: Own computation from survey data (2015)

4.1.3 Age and Experience on the field of work of respondents

In an attempt to verify the relationship between respondents‟ Age and Experience on the field of

work they are involved in, a cross tabulation analysis has been made the result of which is

summarized on table 4.3below.

Table 4.3 : Age and experienceof respondents in their business

Age of respondents

(Years)

Experience on the field

Total Less than

1 year

2 -3

years

3-5

years

more than

5 years

20-25 4 3 0 0 7

26-30 2 13 8 7 30

31-40 2 2 9 25 38

above

40

1 7 10 43 61

Total 9 25 27 75 136


As can clearly be seen on table4.3 above, 57% of the respondents between the age group of 20-25

years have only less than 1year experience on the field of their work. On the other hand, 70% of

the respondents under the age group of „above 40‟ years were found to have more than 5 years of

22

experience on their field of work. From this analysis, we can seethat there is a relationship between

age of respondents and their experience on the field of work.

Hence, since most of the respondents (102 out of 136) have work experience of 3 years or more,

the researcher believes that the response they gave isreliable from the view point of respondent‟s

experience to make inferences.

4.1.4Educational level of respondents

Among the various socio-demographic variables of respondents included on the

questionnaire,which the researcher believes to be worth analysis, is Literacy level which is labeled

as educational level on the questionnaire and analysis. The result of the SPSS analysis is

summarized on table 4.4below.

Table 4.4: Educational Level of respondents

Educational Level Frequency Percent Valid

Percent

Cumulative

Percent

Primary school 27 19.9 19.9 19.9

Secondary school 89 65.4 65.4 85.3

Diploma 17 12.5 12.5 97.8

Degree and above 3 2.2 2.2 100.0

Total 136 100.0 100.0


According to the information contained in the table above, almost 80 percent of the total

respondents have literacy level of secondary school and above. Even those 19.9 percent with

primary school educational levels are believed to have the ability to read and understand the

content of the questionnaire developed for the study.

23

Figure: 4.1 Educational levels of respondents


4.1.5 Business ofrespondents

Even if all the respondents of the study are importers, the purpose of their import for which the

foreign currency is being requested vary based on the nature of the business they are engaged in.

According to the analysis made on the responses collected, majority (75.7%) of the respondents

are engaged in Import and whole sale of goods followed by Manufacturing and Service providing

with 14.7% and 9.6% respectively. The result shows that there are few numbersof manufacturers

as compared with the importers engaged in import and wholesale business and also consistent with

what significant number of the respondents suggested for the encouragement of the manufacturing

sector which is discussed at the last point this section.

The implication of the above result could be importers are less interested to be engaged in the

manufacturing business than the rest two (service providing and import and wholesale ).

24

Table 4. 5: Field of work of the respondents

Field of work of the

respondents

Frequency Percent Valid

Percent

Cumulative

Percent

Import and Wholesale 103 75.7 75.7 75.7

Manufacturing 20 14.7 14.7 90.4

Service providing 13 9.6 9.6 100.0

Total 136 100.0 100.0


For a better display of the variation in number of importer involved in these different businesses,

results are constructed in bar chart on figure 4.2 below.

Figure 4.2: Business of respondents


25

4.1.6 Average annual FCY need of respondents

In assessing the issue of shortage of foreign currency, respondents were asked to answer three

interrelated questions namely, their average annual foreign currency approved , sufficiency of the

amount approved for their business; and timeliness of the approval process. Table4.6 shows the

summary of the annual amount that respondents need.

As can be seen from the table, more than half (54.7%) of the respondents disclosed that their

average annual foreign currency need for their business ranges between 101,000.00 and

350,000.00 USD. Only, 18 percent of the respondents need an annual average of foreign currency

less or equal to 100,000.00 USD. However, the annual average foreign currency requirement of

only 27.3 percent of importers is above USD 350,000.00.

Table 4.6: Average annual need of respondents

Range of need Frequency Percent Valid

Percent

Cumulative

Percent

<= $100,000 23 16.9 18.0 18.0

$100,001 - $350,000 70 51.5 54.7 72.7

$350,001 - $600,000 13 9.6 10.2 82.8

$600,001 - $850,000 9 6.6 7.0 89.8

$850,001 - $1,100,000 3 2.2 2.3 92.2

$1,100,001 -1,350,000 0 0 0 92.2

$1,350,001+ 10 7.4 7.8 100.0

Total 128 94.1 100.0

No response 8 5.9

Total 136 100.0


One the other hand, only 10 (7.8%) of the respondents stated their average annual FCY need to be

more than 1,350,000.00 USD. None of the respondents were found to have an annual need that fall

between the range 1,000,001 and 1,350,000.

The above result implies that only few importers have a foreign currency need that could be

categorized as more than average.In other words, we can understand that most of the needs for

26

foreign currency of importers are in a certain same category which could be taken as average

amount.

4.1.7 Relationship between respondents’business and their annual need

In order to assess any relationship that might exist between the field of business respondents are

engaged in and their annual need for, another analysis has been done result of which is displayed

on Table4.7 below and Figure 3.

From the result on table 4.7, we can understand that out of the 19 respondents who are engaged in

the manufacturing sector, none had an annual demand of less than or equal to USD 100,000.00.

Table 4.7: Relationship between respondents’ business and their annual FCY need

Average annual FCY need Business of respondents Total

Frequenc

y

Import and

Wholesale

Manufacturi

ng

Service

providing

<= $100,000 15(15.5%) 0 (0.0%) 8(6.3%) 23

$100,001 - $350,000 63(64.9%) 3(15.8%) 4(30%) 70

$350,001 - $600,000 8(8.3%) 5(26.3%) 0(0.0%) 13

$600,001 - $850,000 4(4.1%) 5(26.3%) 0(0.0%) 9

$850,001 - $1,100,000 1(1.0%) 2(10.5%) 0(0.0%) 3

$1,350,001+ 6(6.2%) 4(21.0%) 0(0.0%) 10

Total 97 (100%) 19 (100%) 12(100%) 128


On the other hand, none of those respondents who are engaged in the service providing business

such as clinics, hotel, tour and travel, and recreation centers have requested foreign exchange

greater than USD 350,000.00. Moreover, the result indicates that From the foreign currency need

of the majority respondents (80.4 percent) engaged in import and wholesale businesses sector is

below 350,000.00 USD; of which those with an annual average approval of less than USD 100,000

and between 100,001 and 350,000 USD account 15.5 percent and 64.9 percent, respectively.

27

Figure 4.3: Relationship between respondents‟Business and annual FCY need.


On the other hand, with import of big machineries, processing plants, and even raw materials, the

importers in the manufacturing sector shows annual FCY need of more than USD 350,000.00. The

possible implication from this could be manufacturing secter require more foreign exchange than

the other two businesses. Figure 4.3 shows the above discussed relationship.

4.2 Cause, effect and determinants of the shortage

4.2.1 Sufficiency of the annual FCY approved

Following the question as to the amount of annual foreign currency that they need for their

business, respondents were asked if they are getting the amount of foreign currency they need.

Accordingly, the response of this question was summarized and presented on the following table

(Table: 4.8)

28

Table 4.8: Sufficiency of amount approved

Do you get the

foreign currency

amount that

your business

requires?

Frequency Percent Valid Percent Cumulative

Percent

NO 128 94.1 94.1 94.1

YES 8 5.9 5.9 100.0

Total 136 100.0 100.0


As can be seen on Table 7 above, 128 (94%) of the 136 respondents who responded to the question

“do you get the foreign currency amount that your business require?” have replied “NO”. Only 8

of the respondents said they get the amount they need implying that there is a shortage on

importers need for and supply of foreign currency.

4.2.2Timeliness of the annual FCY approved

Another aspect of assessment of the shortage is measuring timeliness of the foreign currency

approvals made. To this end, respondents were asked whether or notthey get the foreign currency

they have requested on time. Their response summarized in Table 4.8 indicates that all except

3(2.2 percent) of the 136 respondents replied that they didn‟t get the amount of FCY they have

applied for their business on time.

Table4.9: Timeliness of approval

Do you get the foreign

currency that your

businesses requireon

time?


Percent

Valid NO 132 97.1 97.8 97.8

YES 3 2.2 2.2 100.0

Total 135 99.3 100.0

Missing System 1 .7

Total 136 100.0


29

For further consideration of the shortage respondents were asked the time in which they have to

wait in a queue before their single pro-forma invoice get approved. Summary of their response is

displayed on Table4.10.

The result of analysis revealed that about 80% of the respondents responded they have to be in a

queue for more than 3 month. Out of these 103 respondents, 60 (58%) of them said that they have

to wait even beyond 6 months. in contrast, only 11 (8.5%) of the total respondents who answered

this question stated the waiting time to be less than 1 month. Hence, since the vast majority of

respondents stated that they have to wait for more than 3 months for just one request, this could

further strength real existence of the shortage which we already detected it on the previous

question.

Table 4.10: Time of waiting in the Queue

How long should you have to wait

before your single pro-forma

invoice gets approved?


Percent

Cumulative

Percent

Less than 1 month 11 8.1 8.5 8.5

1-3 moths 16 11.8 12.3 20.8

3-6 moths 43 31.6 33.1 53.8

more than 6 months 60 44.1 46.2 100.0

Total 130 95.6 100.0

No response 6 4.4

Total 136 100.0


4.2.3 Effect of the shortage on respondents’ business

In order to pinpoint ways as to how a foreign currency shortage affects importers business,

respondents were asked to answer a question saying “how does the waiting (queue affect your

business?” All of the 136 respondents have answered this effect related question. Accordingly,63

or 46.3% of the respondents said “losing existing and potential customers” is the way by which the

shortage affects their business.

30

Table 4.11: Ways FCY shortage affecting the business

How does the waiting (queue) for

FCY affect your work?


Percent

Cumulative

Percent

Delay on our expansion

projects

13 9.6 9.6 9.6

Failure to Comply

suppliers contract

45 33.1 33.1 42.6

Losing existing and

potential customers

63 46.3 46.3 89.0

Failure to meet

customers need

8 5.9 5.9 94.9

Other reasons 7 5.1 5.1 100.0

Total 136 100.0 100.0


Another 45 (33.1%) of the respondent answered “failure to comply suppliers contract” is how the

foreign currency shortage affect their business.“Delay of our expansion project” was chosen by 13

(about 10%) of the 136 respondents to be the way by which the FCY shortage has affected their

business. The overall responses leads us to an implication that significant portion of the

respondents are being affected negatively making their business t be less reliable

Proportion of the responses is depicted on Fig.3

Figure 4.4: Ways of foreign currency shortage affecting Importers‟ business


31

4.2.4 Alternative mechanisms / ways of alleviating importers’ immediate FCY need

An important question, which the researcher believed to reflect how importers react to an

immediate FCY need while the shortage is there, was also included in the questionnaire. The

question was phrased as “do you have any alternative mechanism to curb your immediate FCY

need?” As can be clearly read from Table 4.12 below, 80.1% of those who responded to this

question answered “NO”. i.e., they don‟t have any alternative mechanism of alleviating their

immediate FCY need.

Table 4.12: Alternatives mechanisms of importers’ immediate FCY need?

Do you have any

Alternative

mechanism to curb

your immediate

FCY need?


Percent

NO 109 80.1 80.1 80.1

YES 27 19.9 19.9 100.0

Total 136 100.0 100.0


The above question is important only if it enable the researcher identify what alternative ways (if

at all) importers use to answer their urgent need for FCY. To this end, those respondents who

answered “YES” to the above question (i.e., have alternative mechanism of curbing immediate

FCY need) were further asked another related yet different question response of which is

analyzed on Table 4.13

Table 4.13: Alternatives for respondents Immediate need

Alternatives to answer

immediate FCY need


Percent

Cumulative

Percent

Bulk Purchase 4 2.9 14.8 14.8

Combination of all

mentioned alternatives

10 7.4 37.0 51.9

Remitting our own FCY 3 2.2 11.1 63.0

Under invoicing 10 7.4 37.0 100.0

Total 27 19.9 100.0


32

The above result tells us that, 10 (37%) of those 27 respondents who claimed to have alternatives

for their immediate FCY need mentionedunder invoicing as a way of overcoming urgent FCY

need. This, according to the importers means, minimizing the value of foreign currency amount a

particular invoice might have for the sake of taking advantage of early approval due to the invoce

value. The difference between the actual value of the item to be imported and the under-invoiced

value will be paid through parallel (black market) fund transfers. This result is consistent with the

report made by Global Center on Cooperative Security regarding the prevailing foreign exchange

problem and the resulting growth in parallel markets with the power to challenge the foreign

currency reserve (Keating, 2014).

Another 4 (14.8%) and 3 (11.1%), of these respondents chosen bulk purchase and remitting of

their own currency respectively to be alternative ways for curbing their immediate need. On the

other hand equal number of respondents with those who chose under invoicing as alternative said

they employ combination of the alternatives mentioned above depending on the circumstances.

From this, we can understand that the percentage of importers involved in the under invoicing are

even more than 37%.

4.2.5 Compensation (offsetting) of expenses resulting from the shortage

With an intension of identifying the effect a foreign currency shortage might have on the economy,

respondents were asked how they compensate marginal costs result solely from the shortage and

the resulting counter actions they might take. The question was phrased as “How do you

compensate those expenses that resulted from the foreign currency shortage and actions taken in

this regard?”According to the result summarized on Table 4.14below, more than 91% of the

respondents stated that they transfer it to the ultimate consumers by adding marginal costs to the

selling price of goods and services. This clearly implies that, due to the shortage and consequent

marginal operational cost they are incurring, majority of the importers are contributing to inflated

price of goods and services they are selling. The remaining about 9% said they reduce their profit

margin to the minimum possible. Among the 9%, one of the respondents has stated his response as

“Not only we reduce our profit margin, we may be forced to sell our items at lose. If we have to

stay in the business until a better time comes, we have no choice!”

33

Table 4.14: Ways of compensating expenses resulting from the FCY shortage and

subsequent actions taken in that regard

How do you compensate those

expenses that resulted from

the shortage and actions taken

in this regard?

Frequen

cy

Percent Valid

Percent

Cumulative

Percent

Adding to the price of

goods and services

124 91.2 91.2 91.2

Reducing our profit

margin to the minimum

possible

12 8.8 8.8 100.0

Total 136 100.0 100.0


4.2.6 Effect of FCY shortage on inflation

Another issue that the researcher believed it would address the effect of FCY shortage on the

economy and worth asking of the importers was the issue of inflation, which is one of the

important macroeconomic determinant through which the economic situation could be expressed.

Respondents were asked if they believe the shortage contributes to inflation or not. 129 out of the

136 respondents have answered this question. Summarized result of the responses showed that

81.4% of those who answered this question believethe shortage does contribute to inflation. This

result is also in conformity with United Nations Development Program (UNDP)‟s report of 2014.

“…Since 2006 however Ethiopia has no longer been considereda low inflationcountry and in July 2008

an all-timehigh inflationrate of 64 % was recorded. The major causes were the then highfuel and food

prices shocks, weaker foreign exchange earnings and rising demand for imports that depleted

internationalreserves of the country”( UNDP Country briefing, 2012)

As can be read on the above quoted paragraph, the all-time record inflation was mainly due to the

increase in fuel price which is the main import item of the country constituting for more than

17%of the aggregate import value (see Table 4.25). Again, weaker foreign exchange earnings and

increased demand for imports further aggravate the foreign currency shortage thereby pushing the

price of consumer goods.

34

Table 4.15: Effect of FCY shortage on Inflation

Do you believe that

FCY shortage

contribute to

inflation?

Frequency Percent Cumulative Percent

NO 24 18.6 18.6

YES 105 81.4 100.0

Total 129 100.0


Similarly, a second question related to inflation was asked with regard to the severity of the effect

that this shortage is resulting. Although the question was intended for those respondents who

answered YES to the question of whether FCY shortage is contributing to inflation or not, 70 % of

those who answered NO have also answered this magnituderelated question. To enable readers

relate responses of these two groups of respondents on the above two related questions Table 4.16

below show the cross tabulation result.

Table 4.16:Effect and magnitude of the foreign currency shortage on inflation

Do you believe foreign currency

shortage contributes to

inflation?

Magnitude of effect of the FCY shortage in

contributing Inflation

Total

Freque

ncy Medium Significant Very

significant

Effect of FCY shortage

on Inflation

NO 13 1 3 17

YES 11 33 61 105

Total 24 34 64 122


As can be seen on Table 4.16 above, out of the 105 respondents who said that the shortage does

contribute to inflation, 61 (58%) said the magnitude of the effect is very significant. Another 33

(31.4%) of them stated that the effect is significant. Only 11 (10.4%) said the magnitude of a

foreign currency shortage in contributing inflation to be medium.

35

On the other hand, 13 (76%) of those respondents who answered NO to the question of whether

the FCY shortage is contributing to inflation or notstated the magnitude of the effect to be

medium. The rest 4 respondents stated the magnitude to be significant contrary to what they

responded to the prior question.

Summarizing the above different responses, we can see that almost all of the respondents belive

that the foreign currency shortage does contribute to inflation with more than average level of

severity.

4.2.7 Effect of FCY shortage on importers’ business expansion plan

Similar to the issue of inflation discussed on the precedingparagraphs, respondents were asked

about the effect of the foreign currency shortage on the expansion that their business might have

planed. The question was phrased as “Do you say that foreign currency shortage has affected

diversification / expansion plan of your work? Respondents were also asked a yet another but

related question addressing the magnitude of the effect that the foreign currency shortage also

asked. A cross-tabulation result of the SPSS software showing the summary of responses to these

two related question is presented on Table 4.17below.

Table 4.17: Effect and magnitude of the effect of FCY shortage on expansion plan of

respondents’ business.

Do you say that foreign

currency shortage has

affected diversification /

expansion plan of your

work?

Magnitude of effect Total

Frequency

Medium Significant Very

significant

Effect of FCY

shortage on

business

NO 19 2 1 22

YES 4 44 64 112

Total 23 46 65 134


We can see on Table4.17 above that 134 of the total 136 respondents have given their answer

regarding the effect and magnitude of the shortage on their business expansion. About 83.6% of

the respondents said the FCY shortage has affected the expansion plan of their business. 64

36

(57.1%) of these respondents expressed the magnitude of the effect as Very Significant. Another 44

(39.3%) of them said the magnitude of the effect is significant. Only less than 3.6% of the

respondents expressed this magnitude of the effect as medium. Whilethose respondents, who said

that the shortage doesn‟t affect their business expansion, plan, 86.4% of them expressed the effect

as Medium. The rest 13.6% of them said the effect is significant and above which is again contrary

to what they stated on the preceding question.

The final effect related question that the researcher included in questionnaire was the issue of layoff

which can directly be related with unemployment – another macroeconomic element that can

determine the economic situation. In order to address this issue, respondents were asked if they

undertook any layoff due to the foreign currency shortage and the resulting condition of their

business. Response results are displayed on Table 4.18 below.

Table 4.18: Layoffs made by respondents’ business due to FCY shortage

Was there any layoff

you have made due to

the currency shortage

since the problem has

started?


Percent

NO 56 41.2 41.8 41.8

YES 78 57.4 58.2 100.0

Total 134 98.5 100.0

2 1.5

Total 136 100.0


We can see on Table 4.18 above that 58.2% of the respondents‟ to this question said that they had

layoffs due to their business situation as a result of the FCY shortage. The remaining 41.8%

answered “NO” implying that there were no layoffs made as a result of foreign currency shortage

and resulting businesscondition.

The last part of the questionnaire was constructed with questions for assessing of issues related to

the time since when the problem was started to be felt, reason of the shortage, respondents‟

expectation and possible recommendation for alleviating the problem.

37

4.2.8Time since which the shortage started to be felt

In an attempt of measuring the persistence of the problem, respondents were asked to tell for how

long they have been experiencing the currency shortage. Table 4.19shows summary of responses

for the question of “how long does the FCY shortage problem been there?”

Table 4.19: Time since the problem occurred

How long does the problem

been there?


Percent

Cumulative

Percent

This year only 9 6.6 6.6 6.6

Since last year 8 5.9 5.9 12.5

Since past three years 40 29.4 29.4 41.9

Since past five years 79 58.1 58.1 100.0

Total 136 100.0 100.0


Based on the above summarized result of responses, 58% of the stated that the FCY problem been

there for the past 5 years. Another 29.4% of respondents stated the problem to have existed since

past three years. Adding the two groups of respondents together, we can see that more than 91% of

the respondents have experienced the problem for three years or more implying the shortage has

been persistent.On the other hand, less than 7% of the total respondents said the FCY problem has

been felt this year only.The researcher has found the above results consistent with the data

collected from NBE on which the gap between the import and export value of the country has

shown widening since past five years and more (see Table22).

4.2.9Causes of the shortage

To identify the possible cause for the shortage and thereby find out solutions in solving or at least

minimizing the problem, which is one objective of this study, respondents were asked to state what

they think could be the cause for the prevailing shortage. Based on the information the researcher

could get from the interview carried out with KIIs, four possible alternative answers were included

in the questionnaire that were identifiedto be the causes for the shortage. Accordingly, the

following result was obtained.

38

Table 4.20: Causes of the FCY shortage

What do you think is (are) the

reason (s) for the FCY

shortage?


Percent

Cumulative

Percent

Relative slow growth of

Export in relation to

imports

57 41.9 41.9 41.9

Increase in government

mega projects that result

in huge import

49 36.0 36.0 77.9

Policy ad Procedural

gaps of commercial

banks on allocation and

approval of FCY

21 15.4 15.4 93.4

Other reasons 9 6.6 6.6 100.0

Total 136 100.0 100.0


According to the summarized answer of respondents on Table 4.20 above, 57 (41.9%) of them

stated the relative slow growth of export in relation to import of the country as the primary cause

for the prevailing foreign currency shortage.Increase in government mega projects that require

huge import was another reason chosen by 49 (36%) respondents which is the next highest of the

four different responses. Another 21 respondents stated that the shortage was due to policy and

procedural related problems of commercial bank. These respondents‟ constitute 15.4% of

respondents. The rest 9 % have chosen “other reasons” which was stated at fourth alternative

answer on the questionnaire. (Figure 4.5) depicts proportion of responses.

With an interest of further analysis of the third alternative answer to this specific question, the

researcher has also asked those respondents who have chosen “policy and procedural related gaps

of commercial bank on FCY allocation and approval” as their response.According to their

response, corrupted bank officials are making the shortage even worse with an intension benefiting

from the situation.

39

Figure 4.5: Proportion of responses on causes of the foreign currency shortage


After addressing both the issues of shortage and effects of the shortage, respondents were asked

what they think of the future regarding the problem. i.e., they were asked if they expect for the

problem to be solved sooner. With the exception of 4 respondents, the rest 134 respondents have

given their answer based on their expectation. Accordingly, 95 of the 132 (72%) of them

responded as “NO” implying that they don‟t expect the problem to be solved in near future. While

the rest 37 (28%) replied “YES” expecting the problem to be solved sooner. Responses of this

question are summarized on Table 4.21 below.

41.9%

15.4%

6%

36 %

40

Table 4.21: Expectation of respondents for a solution on the shortage

Do you think the

problem will be solved

sooner?


Percent

NO 95 69.9 72.0 72.0

YES 37 27.2 28.0 100.0

Total 132 97.1 100.0

No

response

4 2.9

Total 136 100.0


4.2.10possible recommendation of respondents

The last question that was given to the respondents of the questionnaire was one that asks for their

recommendation which they might believe will reduce the problem.Unlike the rest of the questions

with alternative choices, this question was stated in an open ended form. Accordingly, respondents

have given different answers which they thinkcould solve or reduce foreign currency shortage.

Even if the answers given by respondents are different and stated in their own way, for ease of

analysis the researcher has rephrased and categorized respondents‟ answers in a way that could

allow furthercomparisontell implications and make inferences.The forthcoming table (Table 4.22)

shows summary of the respondents‟suggestion as categorized by the researcher and analyzed by

SPSS.

41

Table 4.22: Possible recommendations of respondents

Possible recommendations Frequency Percent Valid

Percent

Cumulative

Percent

Government should

encourage exporters 29 21.3 30.2 30.2

Government should

discourage Import of

items that could be

manufactured locally

22 16.2 22.9 53.1

Government should

reduce imports 21 15.4 21.9 75.0

Government Promote the

manufacturing sector 13 9.6 13.5 88.5

Government should take

administrative measure

on FCY approval

procedures of

commercial banks

11 8.1 11.5 100.0

Total 96 70.6 100.0

No response 40 29.4

Total 136 100.0


As can be seen on the table above, of all 96 respondents of this question 30.2% of them suggested

for the government to encourage exporters and enhance the foreign currency supply of the country.

While thesecond group, 22.9 % of the respondents said the government must discourage imports of

items which could be manufactured locally. A yet another and almost equal number (21.9%) of

respondents suggested for government to reduce its imports. The fourth group of respondents to

this question suggested for encouragement of manufacturing sector in which import substitute

products could be manufacture. The last groups of respondents mentioned that government should

take administrative and policy measures on approval procedure of commercial banks. This group

of respondents accounts for 11.5% of the total respondents who gave their answer to this final

question on the questionnaire.

42

Considering the relative high importance of this question and for clearer view of readers, the

responses are again presented on a pie chart on figure Figure4.5 below.

Figure 4.6: Possible recommendation of respondents in alleviating the FCY shortage.


4.3Findings from secondary data

Under this section of the data analysis,secondary data collected from the National Bank of Ethiopia

refined in a way that can complement the primary data is analyzed to enable the researcher meet

the objectives stated at the beginning section of this paper.

The first point that is going to be discussed under this section is the foreign exchange gap that is

the result of the difference between export and import transactions.

43

4.2.1 Foreign exchange gap as difference between the import and export

For the purpose of analyzing the issue of demand and supply gap of foreign currency, which is

another objective of the research, the researcher has employed the data under the following table.

To clearly show the gap between the two values (Export and Import), the table is further expanded

in a way that can show the gross difference between the aggregate import and export values.

Table 4.23: Aggregate annual Import and Export figures

Fiscal Year

(GC)

Import (000's of

USD)

Export (000's of

USD)

Gross Foreign Exchange

reserve (In Millions of USD)

1999/00 1,404,792 486,061.00 355.6

2000/01 1,478,639 464,295.00 344.1

2001/02 1,695,673 452,364.00 670.6

2002/03 1,872,455 482,741.00 929.2

2003/04 2,586,597 600,560.00 1309.2

2004/05 3,633,252 847,368.00 1581.4

2005/06 4,593,143 1,000,504.00 1158.4

2006/07 5,131,328 1,189,136.00 1326.5

2007/08 6,831,029 1,476,540.00 906.4

2008/09 8,125,998 1,460,363.00 1523.8

2009/10 8,452,191 2,025,873.00 2016.6

2010/11 8,046,571 2,762,502.00 3048.9

2011/12 11,104,194 3,158,461.00 2261.7

2012/13 10,820,235 3,078,605.00 2367.7

2013/14 13,161,194 3,263,096.00 2462.9

Source: National bank of Ethiopia (2015)

By simply looking at the table above, one can notice the wide gap that existed between the import

and export values across the 15 years study period. The table also shows the continuous growth of

both the import and export values and the foreign exchange reserve during these years.The

following figure (figure 7) depicts the growth trends of the import and export transactions during

fifteen years.As can easily be seen on the graph, despite the parallel growth recorded in both the

Export and import transaction of the nation, the value of the import was much higher than that of

the export throughout the period under consideration.

44

In a further analysis of the data found from NBE, the gross difference between the aggregate

export and Import values were calculated by the researcher for a clearer view of the gap in foreign

exchange level and the resulting the shortage.

Figure4.7: Trends of annual Export and Import transaction


Based on the facts on Table 4.24, we can understand that throughout the periods taken for

consideration the gross difference has been continuously growing with the exception of fiscal years

2009/10, 2010/11 and 2012/13.

Table 4.24 Gross difference between aggregate annual Import and Export

45

Period Import (000's of USD)

Export (000's of USD)

Gross Foreign Exchange reserve

(In Millions of USD)

Gross Difference

Growth rate of the Gross Difference

1999/00 1,404,792

486,061.00

355.6 918,731.00

-

2000/01 1,478,639

464,295.00

344.1 1,014,344.00

10%

2001/02 1,695,673

452,364.00

670.6 1,243,309.00

23%

2002/03 1,872,455

482,741.00

929.2 1,389,714.00

12%

2003/04 2,586,597

600,560.00

1309.2 1,986,037.00

43%

2004/05 3,633,252

847,368.00

1581.4 2,785,884.00

40%

2005/06 4,593,143

1,000,504.00

1158.4 3,592,639.00

29%

2006/07 5,131,328

1,189,136.00

1326.5 3,942,192.00

10%

2007/08 6,831,029

1,476,540.00

906.4 5,354,489.00

36%

2008/09 8,125,998

1,460,363.00

1523.8 6,665,635.00

24%

2009/10 8,452,191

2,025,873.00

2016.6 6,426,318.00

-4%

2010/11 8,046,571

2,762,502.00

3048.9 5,284,069.00

-18%

2011/12 11,104,194

3,158,461.00

2261.7 7,945,733.00

50%

2012/13 10,820,235

3,078,605.00

2367.7 7,741,630.00

-3%

2013/14 13,161,194

3,263,096.00

2462.9 9,898,098.00

28%


4.2.2 Relationship between Foreign exchange shortage and type of Import items

Another aspect of the import that the researcher intended to assess was the relationship between

the type of items being imported and their import values as a factor in contributing to the foreign

currency shortage. To this end, another secondary data showing import values by item of 15 years

was collected from NBE (see Appendix 3). Out of the varioustypes of items included in the data,

the researcher found only some of them to be worth consideration and analysis.

46

Table 4.25shows Items with more than 5% proportion of Ethiopia‟s aggregate yearly import value.

As can easily be seen on the table below, only 6 import items constitute about 63% of the total

import value of the country. With a relatively stable proportion of the total annual import value,

the below mentioned six items dominated the country‟s import value for the past 15 years with

each of these items contributing for more than 7% of the total annual import.

Table 4.25: Percentage contribution of items to the total annual import of Ethiopia Period Petroleum

(Prod.)

Food &

Live

Animals

Metal &

Metal

Manufacture

d

Machinery

& Aircraft

Road

Motor

Vehicles

Electrical

Materials

Total Import

value of the

country

(000 of USD)

2000/01 17.5% 5% 10% 12% 12% 6% 12,313,956

2001/02 15.2% 9% 9% 12% 10% 6% 14,485,289

2002/03 15.3% 11% 8% 12% 11% 7% 16,067,348

2003/04 11.7% 9% 9% 11% 10% 11% 22,295,690

2004/05 18.2% 5% 11% 14% 9% 10% 31,434,174

2005/06 18.6% 5% 10% 13% 10% 7% 39,873,075

2006/07 16.7% 4% 10% 16% 13% 7% 45,126,438

2007/08 23.9% 4% 11% 11% 7% 7% 63,146,946

2008/09 20.3% 9% 9% 10% 6% 7% 84,677,193

2009/10 17.3% 7% 11% 11% 8% 7% 108,956,272

2010/11 17.2% 3% 8% 12% 10% 6% 129,693,362

2011/12 18.7% 7% 10% 11% 9% 5% 191,587,139

2012/13 13.5% 6% 11% 14% 10% 6% 196,871,016

2013/14 18.2% 4% 11% 14% 9% 9% 261,837,358

2014/15 12.0% 4% 14% 14% 10% 13% 330,794,233

15 years

Average 17.0% 6.1% 10.2% 12.5% 9.6% 7.5% 62.9%


While all the above six items are very essential that the country need to keep importing them from

abroad, a yet another diverse items ranging from beverage ,tobacco and even grains and other

agricultural products constitute for the remaining 37% of the country‟s annual import value. Table

4.26 shows import items that could be produced locally with an already introduced technology

level or with slight upgrading are contributing for about 12% of the nations aggregate annual

import volume. This could validate the recommendation given by more than 36% of the

47

respondents who have suggested for the government to discourage import of items that could

locally be manufactured on one hand and promoting the manufacturing sector on the other hand to

solve or minimize the prevailing foreign exchange shortage.(see Figure 6)

Table 4.26: Percentage contribution of locally substitutable items to the total annual import of

Ethiopia Period Food &

Live

Animals

Beverages Tobacco Soap &

Polish

Textiles Clothing Total Import

value of the

country

2000/01 5% 0.3% 0.2% 1.1% 3.7% 2.8% 12,313,956

2001/02 9% 0.2% 0.3% 0.9% 3.3% 3.2% 14,485,289

2002/03 11% 0.2% 0.2% 0.9% 3.7% 3.0% 16,067,348

2003/04 9% 0.2% 0.2% 0.8% 2.7% 2.7% 22,295,690

2004/05 5% 0.2% 0.2% 0.8% 2.5% 2.7% 31,434,174

2005/06 5% 0.1% 0.2% 0.8% 2.7% 3.2% 39,873,075

2006/07 4% 0.2% 0.2% 0.7% 1.8% 3.4% 45,126,438

2007/08 4% 0.2% 0.2% 0.6% 1.6% 1.9% 63,146,946

2008/09 9% 0.1% 0.1% 0.7% 1.2% 1.3% 84,677,193

2009/10 7% 0.1% 0.2% 0.5% 1.4% 2.2% 108,956,272

2010/11 3% 0.1% 0.2% 0.5% 1.5% 1.9% 129,693,362

2011/12 7% 0.1% 0.1% 0.6% 1.5% 2.2% 191,587,139

2012/13 6% 0.1% 0.1% 0.5% 1.4% 2.3% 196,871,016

2013/14 4% 0.2% 0.0% 0.8% 1.8% 2.1% 261,837,358

2014/15 4% 0.2% 0.0% 0.7% 1.8% 2.1% 330,794,233

15 Years average

91% 2% 2% 11% 32% 37%

6.1% 0.2% 0.2% 0.7% 2.2% 2.5% 11.7%


48

CHAPTER FIVE

CONCLUSIONS AND RECOMMENDATIONS

5.1 Summary of major findings

In light of the objectives set and hypothesis formulated at the beginning of the study, the researcher

has identified the following points to be major findings from the study.

As its clearly stated on the general objective of the study, showing the implications a foreign

currency shortage have on import sector of the economy is the aim of the study. Pursuant to this

aim, the researcher has done analysis of variables that could enable him to directly or indirectly

assess the shortage and its implication. Based on the result discussed in the preceding chapter, the

researcher has found out that:

With regard to the trend in gap between the demand and supply of FCY, the study has

found out a wide gap to have existed throughout the study period. For instance, having an

annual foreign currency need ranging from 10,000-8,000,000 USD almost all (94%) of the

respondents of the study stated that they do not get the foreign currency amount that their

business require. On the other hand, an even higher percentage of these respondents

mentioned that they don‟t get their foreign exchange they need on time with majority of

them witnessing they have to wait for more than six months in waiting line for a single

request. This result was also consistent with NBE‟s data of aggregate import values and the

resulting gross difference.(see Table 4.24)

A wide gap between the export and import (interms of value) of the country has contributed

to the prevailing shortage of foreign exchange. The fifteen years gross difference between

the aggregate annual import and export values collected from NBE has clearly revealed the

wide gap between the two sectors implying that the main cause for the current shortage to

be the relative slow growth of export as compared to the continuous and rapid growth of

imports. This result is also consistent with what respondents of the primary data have

stated. As can be seen on Table 4.20, majority (41.9%) of the respondents who have been

asked to tell what the causes of the foreign currency shortage have stated the relative slow

growth of exports as compared to imports as the primary cause of the shortage.

49

Taking the NBE data about aggregate annual import and export values of Ethiopia in the

past 15 years (2000/01-2015), the researcher has found out that there is a relationship

between the level of import and exports made and the foreign currency shortage. However,

for the relationship between the shortage and the import or export made to be positive or

inverse, it dependent on the rate of growth of the two. Hence, both hypotheses 1 and 2 have

been nullified.

In assessing the relationship between import volume and the FCY shortage, the data from

NBE and the respondents answer for the duration that the problem said to have existed

were used together. As can be seen on table 4.19, more than 90% of the respondents of the

study stated that the FCY problem has been there for more than three years,out of which

majority of them claiming the period to be longer than 5 years. On the other hand, we can

see that the trend of import and export volume showed consistency in the first 10 (until

2010/11) with only slight deviation in growth rate. After fiscal year 2011/12 however,

imports showed a skyrocketing increase further widening the gap between the FCY need

and long lived low foreign exchange reserve of the country. As a result of this shift in

demand the FCY shortage became acute in the last 4-5 years of the study period (see figure

7). The fact that these years (2010-2015) were the period for the first GTP, there has been

enormousinvestments on mega infrastructures consuming huge foreign exchange reserve.

Linking the above facts leads us to find out that there is a relationship between volume of

import and the FCY shortage regardless of how the export performed.

In assessing the impact of the currency shortage on importers, important findings have been

arrived at. For example, nearly 90% of respondents said that the shortage affects their

business by letting them loose their existing customers which are clear and present danger

for their existence in the business. The rest also mentioned that the shortage is threatening

their relationship with their suppliers due to delay of payments and with clients due to

failure to meet sales contracts. On the other hand the importers were also forced to delay or

cancel their diversification plan, and some of them had to shrink and carry out layoffs due

50

to the shortage. These effects on the importers could generally be taken as negative

implication of the foreign currency shortage on the Ethiopian economy.

The study has also revealed that there are problems of procedural and/or operational nature

while allocation of the available foreign currency is made by commercial banks. In addition

to the frequently mentioned recommendation of enhancing the country‟s export, significant

number (11.5%) of respondents has noted that government should take procedural remedial

action against commercial banks which they believe will contribute for the fair allocation

of the scarce foreign currency and thereby minimizing the shortage. This finding also

validates the hypothesis “there is a relationship between foreign currency shortage and its

approval and allocation procedure followed by commercial banks”.

5.2 Conclusion

Based on the findings which the researcher tried to summarize in the preceding section, the

following conclusions are made.

There is a wide gap between the current need for foreign currency and its availability resulting

acute shortage. This conclusion is again consistent with UNDP‟s human development report of

2014.

“There remains a significant gap between domestic savings and investment and there is

an acute shortage of foreign exchange, leading to foreign exchange controls”

UNDP Human Development Report, 2014

The prevailing foreign currency shortage is caused mainly due to import of items which are

far greater than in value of the export the country is making. This again, is mainly due to

the increase in import volume of the nation following the launching of the GTP1 (2010-14)

and start of GTP2 (starting 2015)

Export is growing at a very slow rate than the import is doing.

Significant amount of import items that could be produced locally are being imported

discouraging local manufacturers and unnecessarily consuming the scarce foreign exchange

of the country.

51

Severelyhit by the shortage, the import sector of the economy is highly affected

characterized by poor performance, delay or cancelation of possible expansion that could

generate additional wealth thereby reducing unemployment.

There are procedural and operational bottlenecks in making approval of foreign currency

requests of importers by commercial banks.

The economy is being affected due to the inflationary effect the foreign currency is

creating, aggravating unemployment due to shrinkage of import dependent businesses and

consequent layoffs carried out.

5.3 Recommendations

Since the main objective of the study is to assess the implication a foreign currency shortage has

on the Ethiopian economy, the researcher believes that most of the relevant variables in this regard

have been addressed and analyzed in a way that could help identify what the situation on the

ground looks like. In addition to the general objective of the implication on the economy of the

FCY shortage, other specific objectives that are focused on the importers and the import sector

were also addressed and analyzed to reach on the above listed conclusions. Based on the findings

of the result, the conclusions made by the researcher are all negative implications of the FCY

shortage on the country‟s economy in general and the import sector in particular. Accordingly, the

researcher has made the under mentioned recommendation which he believes will contribute in

tackling the problem and even bring the solution.

A lot of work should be done in enhancing the export level of the country. in addition

to the privileges given to exporters in terms of easy access for export finance and

related minimum interest rate, more work needs to be done in increasing the quality

level of the export products of Ethiopia which is major challenge of the sector now.

(IMF report ,2014)(WorldBank report, 2015).

Parallel to the effort of enhancing the export of the country, policy and operational

measures that encourage firms engaged in manufacturing both export and import

substitute items should be taken by concerned government organs. Unless low price

52

import items are banned from being imported, local manufacturers will be discouraged

with the market share they will have and the effort and privilege given to such local

firms will end up fruitless. Therefore, the support for the manufacturing sector should

not only be to get export products but also substitute import items.

Considering the vast number of citizens engaged and made their livelihood on the

sector, the import sector should be given due attention and those making import of

cheap priced items need to be supported in a way they could transform themselves in to

manufacturers of that item. (For instance, lots of consumer goods such as printing

cartridge that used to be imported are now being produced locally)

Government should make reforms on the foreign exchange management directive in

light of the existing situation. In doing so, the reform should address issues of FCY

allocation and approval procedures of commercial banks against which a lot of

complain is being heard. In addition to this, the reform should also assure elimination

of the parallel market which (according to some trusted officials in the area with an

estimated twice of the legal remittance transaction undertaken in it) is challenging the

country‟s reserve level.

Even though it is undoubtedly true that all the mega projects being undertaken by the

Ethiopian government are essential that canceling of which might jeopardize the

country‟s plan to join the middle income country‟s list, using every available foreign

currency for such projects is over burdening the life of its low income citizens. Hence,

until the export promotion and import substitution effort is materialized, the researcher

recommend if government tries to diversify its external foreign exchange sources

through coordination the Diaspora community in enhancing Foreign remittances,

taking policy measure in creating attractive working climate for Foreign Direct

Investment , looking for access to low interest loans and foreign Aid.

I

Appendices

II

Appendix 1: Questionnaire prepared for Importers and wholesalers, manufactures and

service providers

Dear respondent,

The purpose of this Questionnaire is to gather data for a research on “Assessment of Foreign

currency shortage and its Implication on Ethiopian Economy a study of the import sector”,

in partial fulfillment of the requirements for the award of Masters Degree in Business

Administration. The research will be conducted to assess the implication on the economy in

general of foreign currency shortage as measured in terms of various parameters of the import

sector. I believe your information in this regard will contribute a lot to the success of this

study. While completing this questionnaire, you don‟t need to express yours or your

company‟s name. Answering the questions will not take you more than 10 minutes and I

assure you that the data you will be giving will only be used for academic purpose with strict

confidentiality.

In case you have any inquiry or need clarification regarding the questions, please feel free to

contact me with:

E-mail [email protected] or Mob: 0912-077545

I thank you for your precious time and cooperation!

Yours sincerely

HenokZereu

III

Instruction:

Please encirclethe possible alternatives answer (answers) given for questions with

alternative answers and use the space provided for questions with no alternative answers

given.

I.PersonalDetails:

1. Gender:

a)Male b)Female

2. Age:

a)20- 25b)26-30 c)31-40 d)Above40

3. MaritalStatus:

a)Single b)Married

4. Youreducationalqualification

a)Primary school b) secondary school graduate c )Diplomaholder c)Degreeholder

andabove

5. What filed of work are you involved in?

a)Import and whole sale b, manufacturing c, service providing

6. How long did you stay in the field?

a)Less than 1 yearb) 2-3 years c)3-5 years d )More than 5 years

II. Questions related to shortage

7. What is the average annualestimated amount of foreign currency that your business need?

____________________________________________________________________________________

8.Do you get the foreign currency amount that your business requires?

a)Yesb)No

IV

9.Do you get the foreign currency that your businesses require on time?

a)Yesb)No

10.Howlong should you have to wait before your single pro-forma invoice gets approved?

a)Less than 1 month b) 1-3 Months c ) 3 – 6 months d) More than 6 months

II. Effect of the shortage

11.How does the waiting (queue) affect your work?

a)Lose of existing and potential customersb)Failure to comply suppliers‟ contracts

c) Failure to meet customers‟ need d) Delay on our expansion projects

e) Any other way? Please sate

______________________________________________________________________________

12. Is/are there any alternative mechanism(s) that you use to curb your immediate foreign

currency problem?

a)Yesb)No

13. If your answer for Question No. 12 is yes, what are the alternatives?

a) Remitting our own FCY from abroad

b) Under invoicing the value of the goods /services to be imported and making the

payment of the difference in value via black markets.

c) Making bulk purchases so that frequent FCY requests and subsequent queuing could be

avoided.

d) Combination of the above alternatives

14.How do you compensate those expenses that resulted from the foreign currency shortage and

actions taken in this regard?

a)Transfer it to ultimate consumers or service users by adding it to the prices of goods / service

b)Reducing our profit margin to the minimum possible

V

15. Do you believe foreign currency shortage contributes to inflation?

a)Yesb)No

16. If your answer for Question No. 15 is yes, how much do you think the magnitude of the effect of

the shortage would be in contributing to inflation?

a)Very significant b) Significant c) Medium

17. Do you say that foreign currency shortage has affected diversification / expansion plan of your work?

a)Yesb)No

18. If your answer for Question No. 17 is yes, how much do you think the magnitude of the effect in

tackling your expansion or diversification plan?

a)Very significant b) significant c) medium

19. Was there any layoff you have made due to hard currency shortage since the problem has

started?

a)Yesb)No

20. How long does this problem been there?

a)Since past 5 years b)since past 3 years c) starting last year d, This year only.

21. What do you think is (are) the reason (reasons) for the shortage?

a) Increase in government mega projects and the resulting huge imports

b) Relative slow growth of export to imports being made on national level

c) Policy and procedural gap of commercial banks on allocation and approval of foreign

currency.

d) Any other reason? please state

________________________________________________________________________________

________________________________________________________________________________

________________________________________________________________________________

________________________________________________________________________________

VI

22.If your answer for question No.21 is Policy and procedural gap of commercial banks on

allocation and approval of foreign currency, what are the problems you have observed by the

banks in approving and allocating FCY?Please state:

____________________________________________________________________________________

____________________________________________________________________________________

____________________________________________________________________________________

____________________________________________________________________________________

____________________________________________________________________________________

23. Do you think the problem will be solved sooner?

a)Yesb)No

24. Do you have any possible recommendation or remedial actions that you might suggest in

solving the shortage? Please state

____________________________________________________________________________________

____________________________________________________________________________________

____________________________________________________________________________________

____________________________________________________________________________________

Again

Thank you for your precious time!

VII

Appendix 2: Questionnaire prepared for Importers and wholesalers, manufactures and

service providers – Amharic version

ውድየዚህመጠይቅመሊሽ

የዚህመጠይቅአሊማከጅማዩኒቨርሲቲየቢዝነስናኤኮኖሚክሰፋኩሌቲበቢዝነስአድሚኒስትሬሽንሇማ

ገኘውሁሇተኛዲግሪበከፊሌማሟያነትሇሚውሇውናየውጭምንዛሪእጥረትናበአገራችንኢኮኖሚሊይ

ያሇውአንድምታዳሰሳበሚሌርእስሇማካሂደውጥናትመረጃሇማሰባሰብየሚውሌነው፡፡

ጥናቱየውጭምንዛሪአጥረትከኢምፖርቱክፍሇኢኮኖሚመገሇጫዎችአንጻርያሇውአንድምታሊይት

ኩረትያደርጋሌ፡፡

በዚህረገድምእናንተውድመሊሾችየምትሰጡኝመረጃከፍተኛአስተዋጽኦእንዳሇውአምናሇሁ፡፡

ይህንመጠይቅሲሞለየርስዎንወይምየድርጅቶንስምመጥቀስአይጠበቅቦትም፡፡

ጥያቄዎቹንሇመሙሊት ከ10

ደቂቃያሌበሇጠጊዜብቻእንደሚወስድናየምትሰጡጥመረጃሚስጥራዊነቱተጠብቆሇትምህርትአሊማ

ብቻየሚውሌመሆኑንእያረጋገጥኩስሇትብብርዎናስሇውድጊዝዎበቅድሚያአመሰግናሇሁ፡፡

በጥያቄዎቹዙሪያጥያቄቢኖርዎትምሆነማብራርያቢያስፈሌግዎ፡

በሚከተለትአድራሻዎችቢያገኙኝበደስታምሊሽየምሰጥመሆኔንእገሌጻሇው፡፡

ኢ ሜይሌ ፡ [email protected]ወይም

ሞባይሌ: 0912-077545

ሄኖክዘርኡ

VIII

መመርያ:

እባክዎአማራጭመሌስሊሊቸውጥያቄዎችየመረጡትንመሌስበማክበብአራጭመሌስሇላሊቸውጥያቄዎችደግ

ሞበተተወውክፍትቦታሊይሃሳቦትንበመግሇጽምሊሾትንይስጡ፡፡

I.የግሌመረጃዎች:

1. ፆታ:

ሀ)ወንድ ሇ )ሴት

2. ዕድሜ:

ሀ)20- 25 ሇ )26-30 ሐ)31-40 መ )ከ40 በሊይ

3. የጋብቻሁኔታ:

ሀ)ያገባሇ) ያሊገባ

4. የትምህርትደረጃ

ሀ) የመጀምርደረጃ ሇ) ሁሇተኛደረጃaduate ሐ)ዲፕልማ መ) ዲግሪእናከዝያበሊይ

5. የተሰማሩበትየስራዘርፍምንድነው?

ሀ) በአስመጭናጅምሊንግድ ሇ) በአምራችነት ሐ)በአገሌግልትሰጪነት

6. በተሰማሩበትየስራዘርፍሊይምንያህሌጊዜቆይተዋሌ?

ሀ) ከ 1 ዓመትበታች ሇ) ከ2-3 ዓመት ሐ)ከ3- 5 ዓመት መ) ከ5 ዓመትበሊይ

II.እጥረትተኮርጥያቄዎች

7.በአመትምንያህሌየውጭምንዛሪያስፈሌግዎታሌ ? (ኣማካይ/ግምት)

8.ስራዎየሚፈሌገውንየውጭምንዛሪመጠንያገኛለ?

ሀ)አዎአገኛሇሁሇ) አሊገኝም

IX

9.ስራዎየሚፈሌገውንየውጭምንዛሪበወቅቱ (በሚፈሌጉበትጊዜ) ያገኛለ?

ሀ)አዎአገኛሇሁሇ) አሊገኝም

10. ሇአንድየዋጋማቅረብያ (ፕሮፎርማኢንቮይስ) ምንዛሪፈቃድሇማግኘትምንያህሌመጠበቅኖርቦታሌ? ሀ) ከ 1ወር በታች ሇ) ከ 1-3 ወራት ሐ)ከ 3-6 ወራት መ) ከ 6 ወራትበሊይ

II. ተጽእኖተኮርጥያቄዎች

11.ይህየውጭምንዛሪንሇማግኘትያሇውጥበቃ (ወረፋ) ስራዎንበምንመሌኩነውስራዎሊይተጽዕኖየሚደርሰው?

ሀ)ደምበኞችንእንዲሁምወደፊትደምበኛሉሆኑየሚችለሰዎችንበማሳጣት

ሇ)የእቃአቅራቢዎችንውሌሇመወጣትአሇመቻሌ

ሐ)እቃወይምአገሌግልትፈሊጊደምበኞችንበማሳጣት

መ) የማስፋፍያስራዎችንበማዘግየት

ሠ) በላሊበተሇየመንገድ? እባክዎይግሇጹሌን፡__________________________________________________________________________________________________________________________________________

_____________________________________________________________________

12.አስቸኳይየውጭምንዛሪንፍሊጎትሲኖርየውጭምንዛሪውንየምታገኙበትአማራጭአሇ?

ሀ)አዎአሇሇ) የሇም

13. ሇ ጥያቄቁጥር 12 ምሊሽዎአሇከሆነአማራጮቹንቢገሌጹሌኝ፡

ሀ)የራሳችንንየውጭምንዛሪከውጭበማስገባት

ሇ) የዋጋማቅረቢያዎችንዝቅአድርጎበማዘጋጀትየዋጋሌዩነቱንበግሌሃዋሊሊኪዎችክፍያበመፈፀም

ሐ)በተደጋጋሚግዢምክንያትየሚኖርንየውጭምንዛሪጥያቄናተያያዥየወረፋጥበቃንሇማስቀረትበብዛትግዢበመፈጸም

መ) ከሊይየተጠቀሱትንሁለበማድረግ

14.ከውጭምንዛሪንበተፈሇገውመጠንናወቅትአሇመገኘትእንዲሁምከዚሁጋርተያይዞየሚኖሩተጨማሪወጪዎ

ችበምንመሌኩያካክሳቸዋሌ?

ሀ)በዕቃወይምአገሌገልቱዋጋሊይበመጨመር

X

ሇ)ቀድሞከምናተርፈውየትርፍመጠንያነሰትርፍበመውሰድ

15. የውጭምንዛሪእጥረቱሇዋጋግሽበትአስተዋጽኦያደርጋሌብሇውያምናለ ?

ሀ)አዎ ሇ)አይ

16. ሇ ጥያቄቁጥር 15 ምሊሽዎአዎከሆነሇዋጋግሽበቱያሇውንአስተዋጽኦመጠኑንእነዴትይገሌጹታሌ?

ሀ) በጣምከፍተኛ ሇ) ከፍተኛ ሐ)መካከሇኛ

17.የውጭምንዛሪእጥረቱበመኖሩምክንያትስራዬሉያደርገውይችሌየነበረመስፋፋትወይምማደግተገት

ቷሌይሊለ?

ሀ) አዎ ሇ) አይ

18.ሇ ጥያቄቁጥር 17 ምሊሽዎአዎከሆነእጥረቱበስራዎእድገትወይምመስፋፋትሊይያደረሰውንተጽእኖመጠንእነዴትይገሌጹታሌ?

ሀ) በጣምከፍተኛ ሇ) ከፍተኛ ሐ) መካከሇኛ

19. ከውጭምንዛሪእጥረቱጋርተያይዞበተፈጠረሁኔታምክንጣትድርጅትዎወይምስራዎያደረገውየሰራተኛቅነሳኖሮያውቃሌ?

ሀ) አዎሇ) አይ

20. የከውጭምንዛሪችግሩከተከሰተምንያህሌጊዜሆነው ?

ሀ) ካሇፉት 5 ዓመታትጀምሮ ሇ) ካሇፉት 3 ዓመታትጀምሮ ሐ)ካሇፈውዓመትጀምሮመ)

በዚህአመትብቻ

21.የችግሩመንስኤዎች/ምክንያቶችምንድናቸውብሇውያስባለ ?

ሀ)ከፍተኛየውጭምንዛሪየሚጠይቁግዙፍየመንግስትፕሮጀክቶችመብዛት

ሇ)ከሚደረጉኢምፖረቶችአንፃርየወጪንግዱ/ኤክሰፖርቱባሇማደጉ

ሐ)ባንኮችበውጭምንዛሪአፈቃቀድሊይየሚከተለትተገቢያሌሆነአሰራር

መ) በ ምክንያትእባከዎይግሇጹሌኝ

_____________________________________________________________________________

_____________________________________________________________

XI

_____________________________________________________________________

22. ሇጥያቄቁጥር 21 ምሊሽዎባንኮችበውጭምንዛሪአፈቃቀድሊይየሚከተለትተገቢያሌሆነአሰራርከሆነበባንኮቹአፈቃቀድሊይየሚታዩግድፈቶቹንቢገሌጹሌን

_____________________________________________________________________________

_____________________________________________________________

_____________________________________________________________________________

_____________________________________________________________

23. ችግሩበቀጣይበአጭርጊዜይፈታሌብሇውያስባለ?

ሀ)አዎሇ) አይ

24. የውጭምንዛሪእጥረቱንይፈታሌወይምያቃሌሊሌብሇውየሚለትየመፍትሄሃሳብካልትእባክዎይግሇጹሌኝ

_____________________________________________________________________________

_____________________________________________________________

_____________________________________________________________________

ስሇውድጊዜዎ

በድጋሚአመሰግናሇሁ !

XII

Appendix 3: Import values by item

Import values by item (continued)

Rubber

Prod.

Paper &

Paper

Manfc. Textiles Clothing

Glass &

Glass

Ware

Metal &

Metal

Manfg,.

Machinery

& Aircraft

Road

Motor

Vehicles

Electrical

Materials Grain*

408,838 217,050 461,188 345,433 88,056 1,188,971 1,480,393 1,456,285 782,018 461,335

340,956 269,684 471,499 467,110 72,787 1,359,231 1,667,774 1,435,245 893,039 1,246,119

376,787 218,152 599,604 478,039 78,075 1,311,504 1,963,002 1,817,630 1,059,754 1,580,973

417,410 329,915 606,295 601,949 104,362 2,012,945 2,397,183 2,124,501 2,447,540 1,573,618

536,827 434,417 774,285 836,015 125,294 3,476,768 4,553,244 2,811,972 3,062,726 1,334,778

730,113 517,374 1,065,381 1,291,287 145,048 4,157,675 5,305,516 4,183,804 2,978,793 1,621,232

838,145 565,483 808,907 1,523,051 163,834 4,460,322 7,036,854 6,062,546 2,968,701 1,323,878

1,030,557 770,591 986,145 1,198,037 243,667 7,051,109 7,118,469 4,279,547 4,404,967 1,902,765

s1,422,155 819,639 1,023,983 1,124,962 235,344 7,990,303 8,713,241 4,859,888 5,866,530 6,285,857

2,220,337 1,188,178 1,476,236 2,433,694 267,320 11,618,002 12,278,627 8,503,493 7,728,010 6,190,933

2,515,039 1,137,791 1,982,717 2,430,231 334,932 10,778,367 16,015,252 13,180,603 7,195,551 2,739,632

3,373,729 1,843,948 2,892,344 4,218,310 522,024 19,678,247 20,529,023 17,831,730 8,696,845 10,436,910

4,030,338 2,064,095 2,744,224 4,449,522 722,828 21,688,480 28,035,377 20,493,273 11,912,689 9,865,215

5,858,244 1,992,580 4,622,749 5,442,436 1,942,407 29,939,445 36,774,861 23,820,186 22,735,293 5,603,599

5,979,668 2,062,833 5,819,130 6,802,500 2,477,281 45,631,138 45,707,264 31,471,855 43,251,536 2,971,791

Period

Food &

Live

Animals Beverages Tobacco

Petroleum

Crude

Petroleum

Prod.**** Chemicals Fertilizers

Medical

&

Pharm.

Prod

Soap &

Polish

2000/01 641,597 34,628 28,561 0 2,151,326 153,782 126,860 293,784 140,236

2001/02 1,365,581 35,886 48,550 0 2,202,554 145,066 560,257 358,994 128,513

2002/03 1,697,566 33,509 35,614 0 2,463,917 165,902 462,662 352,193 145,207

2003/04 1,981,297 36,937 37,348 0 2,608,285 201,668 923,523 636,324 173,378

2004/05 1,566,093 52,090 52,034 0 5,736,666 250,951 1,055,294 671,524 240,863

2005/06 2,139,779 45,715 77,860 0 7,422,807 348,264 1,180,768 1,212,655 337,445

2006/07 1,799,700 68,204 74,841 0 7,524,664 399,852 933,867 1,410,844 328,116

2007/08 2,499,134 97,080 115,642 0 15,076,123 488,539 2,828,101 1,848,363 377,282

2008/09 7,251,053 89,171 104,398 0 17,219,182 677,521 3,008,355 2,771,689 552,503

2009/10 7,713,047 142,346 177,543 0 18,891,592 888,064 3,221,932 3,936,222 530,093

2010/11 3,966,149 167,354 230,682 0 22,299,884 1,118,884 5,665,269 5,054,381 685,949

2011/12 12,692,391 206,514 270,210 0 35,868,583 1,357,151 10,503,430 6,488,435 1,128,549

2012/13 11,635,650 261,691 193,101 0 26,565,255 2,092,402 5,332,244 7,169,253 907,442

2013/14 9,165,826 533,829 91,441 18 47,619,870 3,647,031 7,808,484 2,389,297 2,186,493

2014/15 13,155,398 570,045 94,776 200 39,822,539 3,751,995 8,641,772 2,568,987 2,186,737

XIII

Import values by item (continued)

Telecomm.

Appara. Others

GRAND

TOTAL

66,419 2,248,531 12,313,956

101,456 3,364,964 14,485,289

111,634 2,696,596 16,067,348

502,494 4,152,333 22,295,690

344,108 4,853,003 31,434,174

365,874 6,366,919 39,873,075

329,270 7,829,238 45,126,438

243,818 12,489,774 63,146,946

51,369 20,895,905 84,677,193

102,036 25,639,499 108,956,272

73,258 34,861,069 129,693,362

80,038 43,405,637 191,587,139

96,583 46,476,571 196,871,016

349,551 54,917,318 261,837,358

1,489,172 69,309,407 330,794,233

XIV

Appendix 4: Agregate import and export values with gross foreign exchange reserve

National Bank of Ethiopia

Period Import (000's of USD) Export (000's of USD) REER Index Gross Foreign Exchange

reserve (In Millions of USD)

1979/80 692,202.00 414,236.00

1980/81 668,712.00 411,357.00

1981/82 793,073.00 375,886.00

1982/83 846,833.00 391,123.00

1983/84 997,587.00 449,094.00

1984/85 855,282.00 359,697.00

1985/86 1,063,413.00 446,288.00

1986/87 1,080,650.00 384,195.00

1987/88 1,098,865.00 373,740.00

1988/89 1,019,494.00 436,113.00

1989/90 881,217.00 355,945.00

1990/91 473,401.00 120,552.00

1991/92 402,422.00 62,006.00 344.5 1992/93 722,429.00 159,872.00 149 1993/94 820,859.00 214,521.00 150.3 1994/95 1,047,320.00 437,092.00 138 1995/96 1,220,084.00 401,889.00 121.5 1996/97 1,308,351.00 536,192.00 113.9 583.4 1997/98 1,356,999.00 601,961.00 112.2 439.9 1998/99 1,557,961.00 484,251.00 111.9 450.3 1999/00 1,404,792.00 486,061.00 109.1 355.6 2000/01 1,478,639.00 464,295.00 97.8 344.1 2001/02 1,695,673.00 452,364.00 93.8 670.6 2002/03 1,872,455.00 482,741.00 100.9 929.2 2003/04 2,586,597.00 600,560.00 96.4 1309.2 2004/05 3,633,252.00 847,368.00 100.7 1581.4 2005/06 4,593,143.00 1,000,504.00 112.2 1158.4 2006/07 5,131,328.00 1,189,136.00 117.7 1326.5 2007/08 6,831,029.00 1,476,540.00 150.5 906.4 2008/09 8,125,998.00 1,460,363.00 140.7 1523.8 2009/10 8,452,191.00 2,025,873.00 121.2 2016.6 2010/11 8,046,571.00 2,762,502.00 122.8 3048.9 2011/12 11,104,194.00 3,158,461.00 139.4 2261.7 2012/13 10,820,235.00 3,078,605.00 140.2 2367.7 2013/14 13,161,194.00 3,263,096.00 140.8 2462.9 Data Source: Ethiopian Customs Authority and NBE

Note: The Import and export data are converted to USD using annual average Exchange Rate

XV

Appendix 5: Export values by item

Commodity 1999/00 2000/01 2001/02 2002/03 2003/04

Coffee 2133645.5 1520100.6 1393809.3 1418323.9 1926678.8

Oilseeds 255329.5 269597.9 278738.2 395565.1 712738.0

Leather and Leather products 286459.5 633751.8 474425.6 448002.8 375844.2

Pulses 80021.2 72799.6 281409.1 171243.7 194678.5

Meat Products 32707.5 14366.0 9422.7 20781.5 66675.9

Fruits & Vegetables 44249.6 45689.3 80114.2 82118.0 109662.7

Sugar 23958.2 68471.6 85106.1 153712.1 88632.5

Gold 260044.0 234890.4 300714.8 361026.3 419858.1

Live Animals 14136.6 1505.6 7132.3 4129.0 16453.9

Chat 618771.6 510505.6 418674.3 497866.4 758878.4

Bee's Wax 5549.3 7247.3 6005.8 4032.3 8280.4

Tantalum 0.0 0.0 0.0 34323.6 34471.6

Cotton 0.0 0.0 0.0 96106.1 105138.4

Text. & Text. Prdts. 0.0 0.0 0.0 0.0 75837.5

Cereals and Flour 0.0 0.0 0.0 120990.7 102553.0

Natural Gum 0.0 0.0 0.0 18878.0 37057.0

Civet 0.0 0.0 0.0 2574.3 1723.6

Hop 0.0 0.0 0.0 1716.2 2585.4

Animal Fodder 0.0 0.0 0.0 2574.3 2585.4

Natural Honey 0.0 0.0 0.0 7.7 258.5

Marble 0.0 0.0 0.0 7.7 0.0

Flower 0.0 0.0 0.0 68.6 19821.2

Beverage 0.0 0.0 0.0 1716.2 3447.2

Spices 0.0 0.0 0.0 37756.0 59980.6

Others 0.0 0.0 37756.0 263687.6 54624.1

Others 0.0 0.0 37756.0 580406.9 500083.3

RE-exports 0.0 0.0 0.0 0.0 0.0

Total 3,754,872.43

3,378,925.67

3,411,064.33

4,717,614.91

5,678,548.10

XVI

Appendix 5: Export values by item

Commodity 2004/05 2005/06 2006/07 2007/08 2008/09

Coffee 2901327.3 3076494.0 3741744.8 4897344.1 3932229.4

Oilseeds 1082215.3 1835270.1 1654707.5 2037089.9 3819428.6

Leather and Leather products 585184.5 651332.7 789162.5 917533.8 763692.1

Pulses 306609.3 320969.1 619559.7 1333631.1 946826.1

Meat Products 126152.0 160842.1 135517.7 193943.6 273517.9

Fruits & Vegetables 139052.8 114541.3 142207.6 118398.3 124029.1

Sugar 5277.1 0.0 0.0 17879.5 178586.5

Gold 513364.4 562141.0 863856.0 735122.1 1034497.6

Live Animals 110874.6 239240.2 323065.6 376474.3 539985.5

Chat 866802.9 773235.4 816802.1 1000784.6 1448074.5

Bee's Wax 9587.9 12551.5 16089.8 17091.4 16436.6

Tantalums 43429.9 37721.0 54487.6 56562.5 72109.2

Cotton 15700.3 59465.4 126809.9 178419.6 63089.3

Text. & Text. Prdts 62143.0 95011.9 109415.5 141137.4 143433.0

Cereals and Flour 75313.3 123838.8 15908.8 18987.1 3274.2

Natural Gum 42596.1 45041.9 49691.1 63928.7 100044.0

Civet 0.0 0.0 0.0 0.0 0.0

Hop 235.6 0.0 0.0 0.0 0.0

Animal Fodder 24086.7 3896.4 20431.9 26130.4 248.4

Natural Honey 457.7 685.9 10407.8 5962.6 5564.5

Marble 61.7 0.0 0.0 0.0 0.0

Flower 67807.6 189006.2 561307.2 1037924.2 1374357.5

Beverage 3720.3 2686.8 5389.7 0.0 12636.3

Spices 92983.4 89247.4 97459.0 114717.3 117028.5

Others 256273.9 292156.6 303593.2 354913.2 248664.2

Others 684809.4 938758.4 1354901.9 1998683.1 2140449.0

RE-exports 0.0 0.0 0.0 0.0 0.0

Total 8,016,066.95

9,624,134.15

11,812,517.02

15,642,658.88

17,358,201.83

XVII

Appendix 5: Export values by item (continued)

Commodity 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15

Coffee 6913379.6 13617880.5 14424847.6 13597849.7 13708114.4 15734933.3

Oilseeds 4670848.6 5282979.3 8174105.3 8096548.1 12477209.3 10269297.7 Leather and Leather products 732602.8 1690160.6 1894380.9 2205364.2 2474650.1 2644747.6

Pulses 1677731.5 2232691.6 2762646.4 4251495.8 4790442.6 4409211.9

Meat Products 440952.2 1024706.4 1358079.3 1350633.5 1424013.5 1865868.2

Fruits & Vegetables 412604.9 512634.6 775375.0 798838.9 877215.0 956613.9

Sugar 124.4 0.0 0.0 0.3 0.0 0.0

Gold 3709811.7 7540511.6 10417359.5 10536982.9 8722190.8 6399026.4

Live Animals 1177285.5 2387245.6 3565928.4 3022720.8 3553276.0 2976556.1

Chat 2710332.2 3836251.1 4144328.1 4936460.2 5670685.5 5468030.5

Bee's Wax 20605.3 29126.9 37332.6 47777.7 52045.9 95727.0

Tantalum 153608.4 462480.7 288206.3 92237.8 86421.9 202646.1

Cotton 137759.3 8650.8 3258.7 157790.3 20055.9 236.0

Text. & Text. Prdts 297312.2 1000167.8 1460989.4 1773244.5 2100917.3 1969322.2

Cereals and Flour 74756.2 528437.6 106556.2 70232.4 213114.6 319557.1

Natural Gum 163963.8 206788.5 202776.6 204687.9 231459.8 230954.0

Civet 0.0 0.0 0.0 0.0 0.0 0.0

Hop 0.0 0.0 0.0 0.0 0.0 0.0

Animal Fodder 61654.3 429.6 74.6 217.2 0.0 250.9

Natural Honey 24663.0 26794.5 55997.6 52866.1 47226.6 46140.1

Marble 0.0 0.0 0.0 0.0 0.0

Flower 2204195.0 2845760.3 3402184.0 3401603.0 3817383.8 4086866.1

Beverage 22095.5 33876.9 76520.9 92156.8 59894.9 79901.2

Spices 242479.6 567237.7 620121.3 546642.5 561152.0 647849.5

Others 266539.8 690752.5 723698.9 887241.0 1355529.5 1456645.4

Others 3649027.2 6371376.8 6940384.3 7278919.5 8493156.3 9040368.6

RE-exports 0.0 0.0 0.0 0.0 0.0

Total 29,764,333.12

50,896,941.86

61,435,151.62

63,402,511.25

70,736,155.89

68,900,749.70

XVIII

REFERENCES

Alemayehu G.,2001, „Macro economic Performance in post-DergEthiopia Michigan

University Press http://www.jstor.org/stable/41931360 Northeast African

Studies, New Series, Vol. 8, No. 1, adjustment of long-term homeless youth‟

Australian Journal of Social Issues, vol.26, no. 1, pp. 24-34.

AmehaWolday 2007/2008, Report on the Ethiopian Economy, Volume VII 2007/2008,

Ethiopian Economic Association (EEA)

Anella Munro and Michael Reddell 2012,foreign currency reserves: why we hold them

Influences how we fund them, Reserve Bank of New Zealand: Bulletin, Vol. 75, No.

Andrew K.Rose 2002,The Effect of Common Currencies onInternational Trade: Where do

westand

Anella Munro and Michael Reddell 2012,foreign currency reserves: why we hold them

Influences how we fund them, Reserve Bank of New Zealand: Bulletin,Vol. 75, No.

3, September 2012

B. Snowdon and Hoard R.Vane 2005, Modern Macroeconomics, Edward

Elgar publishingInc.Northampton,Massachusetts, USA.

David Romer 1996, Advanced Macroeconomics, McGraw Hill companies, USA

D. Miller and Jeffrey J. ReuerAsymmetric Corporate Exposures to Foreign Exchange

Rate ChangesManagement Journal, Vol. 19, No. 12 (Dec., 1998), pp. 1183-1191

FDRE Ministry of Finance and Economic Development (MoFED) 2010, Growth and

Transformation Plan (GTP) 2010/11-2014/15 Draft

FDRE ministry of trade, 2015.viewed 10 October 2015, <http://www.mot.etTom Keating, 2014,

Emmanuel PitiaZachariaLado 2015. Test of relationship between Exchange Rate and Inflation

in South Sudan: Granger-Causality Approach.Economics.Vol. 4, No. 2, 2015, pp.

34-40.doi: 10.11648/j.eco.20150402.13South Sudan: Granger-Causality Approach

XIX

Hassan Raza 2013,Effect of trade deficit on the economy of pakistan,Mohsin Abbas

uperior University, Lahore, Pakistan

Markzyk,Dematteo&Festinger 2005, Essentials of Research Design and Methodology

Ministry for Foreign Affairs of Finland 2014,Country Strategy for Development Cooperation

With Ethiopia2014–2017

Mirakhor and Zaidi 2006, Foreign Currency Deposits and International LiquidityShortages

InPakistan, Pakistan Institute of Development Economics,

Islamabadhttp://www.jstor.org/stable/41260735John Wiley& Sons, Inc. New

jersey, USA

International Monetary Fund 2014, Selected Issues Paper, Country report No.14/304, IMF

Publication services, Washington D.C.

Investopedia viewed 26 December 2015

http://www.investopedia.com/ask/answers/ .asp#ixzz3vJL8bBUq

N. Gregory Mankiw 2007 Macroeconomics 5th

Edition, USA

National Bank of Ethiopia Annual Report 2013/2014, page46-47

National Bank of Ethiopia Annual Report 2012/2013, page 47

Patterson 2001, Exchange rate unification and the persistence of the parallel market: the Ethiopia

case, African Review of Money Finance and Banking, rican Review of Money

Finance and Banking (2001), pp. 37-50

Pecchi and Andrea Ripa di Meana 1998,GiornaledegliEconomisti e Annali di Economia,

NuovaSerie, Vol. 57 (Anno 111), No. 2

Stefano Mainardi 1991, Foreign Exchange Shortage, Growth and Inflation: An

Econometric ApplicationtoEthiopia Giordano Dell-Amore Foundation

http://www.jstor.org/stable/41260735

Investopedia

http://www.investopedia.com/ask/answers/%20.asp#ixzz3vJL8bBUq

XX

TewodrosMekonnen 2012,Determinants of Export Commodity Concentration and

Trade, Dynamics in Ethiopia,Ethiopian Economics Association Ethiopian

Economics Policy Research Institute (EEA/EEPRI), working paper 2/2012.

Tom Keatinge 2014, Growing an Economy” Impact of Foreign Exchange and

Remittances on Ethiopian Development, policy brief

U Bhojana 2007, Research Methods for management Bharathiar University, School of

DistanceEducation Coimbatore New Delhi, India

World Bank Group 2015,4th Ethiopia Economic Update: Overcoming Constraints on the

Manufacturing Sector,The World Bank, 1818 H Street, NW Washington, DC

ZerihunWondifraw 2015, African Economic outlook

jimma university college of business and …...of master of business administration (mba) to the...

Documents