Financing Trade with Ethiopia More and more overseas markets are opening up for foreign trade. This creates many new opportunities for the resourceful entrepreneur. However, financing trade in a relatively new and untested market such as Ethiopia entails many risks and challenges. Therefore the main guidelines of the paper are: to point out the biggest concerns of financing trade with Ethiopia to find ways to minimize the risks to describe major issues and risks in financing trade with Ethiopia to describe the options available for financing trade with Ethiopia The purpose of the paper is to enlarge and widen knowledge about Ethiopia and its foreign trade. Nowadays Ethiopia is one of the most populous countries in Africa. The country is still failing to gain the broad confidence in questions of trade finance and insurance markets, although the country has good payment record and commitment to an IMF-supported economic reform program. This program is supported by donors. But the issues of the biggest concern are countrys poverty rates and bureaucratic financial system. These issues prevent banks and underwriters from operating on any but the most cautious terms.
It is known that private banks in Ethiopia are appearing, but nevertheless they are only in the initial stage of development. They are not stable and confidence yet. (Ethiopia: Insurers) Ethiopias government is really cautious about foreign trade and foreign investments in strategic sectors of the country. It is reported that reserves of foreign exchanges in the country were $700-900 millions in the last fiscal year. During the current year the reserves significantly slipped to a mark of only 4500 millions. It is seen that the country has a potential to grow, but this process is worsen by many factors which will be discussed below. Nowadays the country has some opportunities for development, although negative moments are still dominating. Foreign investors are rather afraid of dealing with Ethiopia, because its economic and financial position is too instable and unconfident.
Real appreciation/depreciation of the Irish Punt, US Dollar, French Franc, Japanese Yen and Deutsche MarkThe real exchange rate is the nominal exchange rate adjusted for changes in the relative purchasing power of each currency (Shapiro, 1999). This concept can be linked to the theory of Purchasing Power Parity (PPP), first introduced by Gustav Cassel in 1918 and defined as:e (home)/e (foreign) = ...
Ethiopia has to take measure to improve its positions in the financial markets. (Ethiopia: Insurers) It is necessary to describe the main issues and risks in financing trade with Ethiopia. Firstly it is necessary to mention that the country is not regarded as among the worst risks in Africa. The country is rated weaker than Cote d’Ivoire, but is on a par with such countries as Senegal. In Ethiopia there are some sectors that can de defined as risk sectors – duty-free shops and burgeoning gold mine industry. International observers are not sure in trade finance of the country, because the country is characterized by fragility of economy. One more weakness is export base rooted in basic commodities such as skins, beans, cut flowers, coffee and hides. Demand and prices for those goods are set in the international markets and are not controlled by Addis Ababa.
The next negative moment is the performance of the coffee crop is highly dependent on the drought and weather which can cause desperate human sufferings as well as financial problems. The ability of the country to feed itself is also not very high. So the mains risks are instability and dependence on weather conditions. (Ethiopia: Insurers) The next point to discuss is the options available for financing trade with Ethiopia. For this purpose it is necessary to pint out positive changes in Ethiopias financial trade. The potential size of the countrys market is about 60 million people. Ethiopia is trying to liberalize the existing Marxists structure which was inherited from the regime of Mengistu.
In the world market, countries trade products they wouldn’t be able to produce on their own. Countries like Cuba specializes in cigar production, Japan in electronics, and Russia in rocket technology. However, even if a country has an absolute advantage in producing all goods, they still will benefit from trade. Many economic factors are involved with trade. Among the major factors are ...
Due to such changes Ethiopia may hope for a more positive and stable positions in the financial markets. What is more important is that aid donors committed a massive $2.5bn in order to support and to promote the recovery program and economic reform. It is necessary to outline that the demand on hard currency is increasing. That is why the access to hard currency is becoming less bureaucratic due to banking market liberalization in July of 1996. Nowadays the foreign exchange is weekly auctioned. Ethiopian birr is told to maintain its value against the dollar in such tradings. Concerning private banks they are now operating their bureaux de change. (Ethiopia: Insurers) One more fact that official exchange rates must be sustainable, confident and credible is forex parallel illegal market.
It operates just on a small scale and its rates accounts only for few percentages compared with official auction-set rates. Neighboring state Eritrea is trying to abandon birr and to create its own new currency nakfa. It is noted that nakfa is only in the initial period and it will be pegged at par to the birr. Such change in currency wont affect the exchange rates of Ethiopia. This fact is important, because it is apparent that Ethiopia has the potential to develop and new option are now available such as official auctions, for example. It is necessary to underline that solid position of birr will enhance the credits status of local and private buyers. Such buyers are known to be dependent on on income from local currency sales in the domestic market. Nevertheless in spite of new available options and opportunities in Ethiopia, international attitude is still cautious.
(Ethiopia: Insurers) The important question is how to minimize the risks. The possible ways are: Make the bureaucratic system less complicated and simpler To make currency more stable To liberalize banking market Implement economic reform Create recovery program plan (Ethiopia) In conclusion it is necessary to point out that in spite of all improvements and tendencies in Ethiopia, international attitude is still cautious and is not ready for constant and stable financial trade with the country. Ethiopia needs to take measure in order to make country more stable and such as deserves international attention. But Ethiopia has the real potential for economic and financial development. (Ethiopia: Insurers) References Ethiopia: Insurers, bankers Cautious, Despite Reforms. 1997. International Trade Finance: London.
The Nigerian foreign exchange market; rate determination; control and prospects for Naira convertibility Good morning members of the high table, my colleagues in the industry and all other distinguished guests. It is my greatest pleasure to present this paper at the Foreign Exchange seminar organized by the Chartered Institute of Bankers of Nigeria. I hope I am able to shed light on this extremely ...
Ethiopia. 2005. retrieved August, from http://www.mbendi.co.za/land/af/et/p0005.htm USA and Foreign Commercial Service. 2005. Retrieved August, from http://www.exporthotline.com.