This is a presentation by Yared Haile-Meskel, Managing Director, YHM Consulting, at the 3rd Annual East Africa Finance Summit

1. By Yared Haile-Meskel MSc, MPhil, MBA
Empowering Solutions
http://www.yhm-consulting.com
O924039168
yared@yhm-consulting.com
Causes and Cures of Ethiopia’s
Foreign Currency Shortage

2. Outline
Problem
When the problem started
1
5
7 Trade Balance ≠ Shortage
Rainy in China and Draught in Ethiopia
The Global Foreign Currency Glo
6
2
8 Ethiopia’s Balance
The Myth and the Reality3
Reality: The dollar rain4
Recommendations – Cures8
2

3. Problem
• Ethiopia’s critical foreign currency shortage
• Impact on:-
– Foreign Direct Investment and
– GDP growth.

4. Myth of Foreign Currency
• Urban myth: believed because it sounds reasonable.
• Perception: Former long serving Ministry of finance
said : “Ethiopia’s foreign currency problem cannot be
solved in our life time”.
• Trade balance = Availability of foreign currency
• Countries can have a negative trade balance but not
foreign currency shortage.
• Problems: Policy or National Bank?

5. Helicopter Money: The dollar rain
• Milton Freeman Helicopter Money 1969
• 2008 credit crunch, liquidity trap and Qualitative
Easing, QE
• The European Central Bank = 60 - 80 billion/month
• EU printed 700 billion Euros to rescue Greece...
• The Bank of England 445 billion ..banks
• US printing machine was busy:
– According to the financial time Fed has quadrupled the size of its balance sheet to
$4.5tn
– Bloomberg 15 trillion dollars and CNBC news 12.5 trillion USD.
• US. EU, UK, Japan, and other countries

6. Rain in China - draught in Ethiopia
• China was receiving QE money and anxious.
• China was kicking back dollar to Africa
• This anxiety “imminent dollar collapse” made Bitcoin a
reality
• Raining everywhere but dry in Ethiopia

7. Where our problem started?
• 42 years of Communist regulations
• Before the Berlin Wall all communist
countries had our problem
• Maybe Ethiopia and North Korea scared to
change
• Muddled Ethiopia’s trade balance with
Ethiopia’s foreign currency shortage.

8. Trade balance ≠ Foreign currency shortage
• 80 percent of the countries have negative trade
balance but not foreign currency shortage
• Zero sum game like football game: max 50%
• Countries with +ve trade balance
– Send back the money in the form of FDI,
Tourism, Remittance and other exchanges.
• If not, trade ceases to exist,
• Example: Chinese to Africa

9. Countries with –ve
• Turkey, India, Egypt, South Africa, Kenya,
USA, UK, Brazil, and Somalia have negative
trade balance but that never had foreign
currency shortage.
• Somaliland and Somalia never run out of
foreign currency
– Export goats, cattle, banana and charcoals.
– But Somalia is the 2nd biggest export
destination of the Ethiopian product next to
China.

10. Where did Somalia got foreign currency?
• Hargeisa, Somaliland Dollar is sold on the street
• National Bank:- a criminal offence 200 birr out of
the country for the last 41 years.
– Logic? poverty consciousness,
• Germany, China, Japan, South Korea, Taiwan,
Israel have a positive trade balance and can
trade.
• Communist mind-set, 1977

11. The curse of Marx and the Bread Ration
• Marx believed that the world resource is limited
and the Bourgeois have too much of it and the
proletariat have none.
• Marx said “nothing great has been achieved
without violence”
– Destroy- share equally to live happily ever after.
• We had a bread ration and shortage
– No ration: Delicious breads - wheat, barley, Oath, teff,
white and brown, soft and crusty, wholegrain and
sweet etc.
• The same mind-set in foreign currency

12. Ethiopia: Balance
• Ato Tsedeke Yihunie, government in 1977
• Deficit is around 13 billion USD last in 2017.
Sources of Foreign Currency USD Billions
Remittance 5
Aid 3
FDI 3.9
Tourists ( 1 million) 1
Ethiopian Airlines (Revenue 60 billion) 2
Shipping lines ( 15 billion birr) 0.5
Ethiopian power Authority 0.08
Commercial Loan China, IMF, WB, EU, US 3
Ethiopia is the 3rd Diplomatic Capital 1
Export 3.5
Total 22.98
Import bill 17
Difference +5.98

13. Cures
1. Remove the 1977 Communist regulation?
– All communists, India and china .
– What are we scared off? Somalia 2nd biggest
importer
2. Abolish the NB’s “Use it or lose it in 28 days
policy”.
3. Lift the restriction on the Diaspora investment.
– “Active/passive investing”.
– Financial sectors.
– 28 billion birr= 1 billion USD banking sector

14. Cures
4. Separate immigration and visa service from the
National Security,
– Default setting is no,
– Longer conference visa to drink 300 kg of
Coffee a day.
• 250 USD per day = 100 Kg of coffee or 250 kg of
coffee beans or 1600 roses to Amsterdam.
• Take transportation, packaging, labour, and
fertilizer, the value remaining in the country is
probably 30%. 300 kg of coffee export or 4800 of
red roses per day.

15. Cures
5. Liberalise land
– UK is 21% of the size of Ethiopia
– 40% of London is Park. The Hide Park, for example is
about 145 hector (1, 420, 000 m2 ).
– Investment in the housing sector is not coming.
– 1 million Ethiopians register for sub-standard
government condominium - 10 years.
– Sell 250 sq suburban areas for 10,000 USD and
100,000 Ethiopian will buy= 1 billion USD land and 5
billion USD money to build

16. Cures
6. Set a stockmarket
– proven platform for mobilising resource
– 152 out of 190 countries
– Passive investors
7. Allow Ethiopians working for international
organisations to have a foreign currency account
– Foreign Office employees,
– Ethiopian airlines,
– ECA, AU, other international organisation and
anyone working abroad

17. Cures
8. Lift the restriction on the amount of birr that
can be taken out of the country.
- 200 birr for 41 years
9. Remove intrusive regulation to provide off-shore
banking services:
- Our money is in off-shore banking all over the
world and why not others bring their money.
These are some of the cures to our chronic
problems.

18. 4th Time Lucky: Tangibles and Intangibles

19. Thank you
Yared Haile-Meskel
YHM Consulting
yared@yhm-consulting.com
www.yhm-consulting.com
+44924039168