Navigating Ethiopia's Foreign Exchange Rules

The foreign exchange regulations in Ethiopia have undergone significant transformations over the years, reflecting the country's evolving economic landscape. The current regulations offer a comprehensive framework that governs the country's foreign exchange transactions, promoting economic growth while ensuring financial stability. This article delves into the intricacies of these regulations, shedding light on their implications for various stakeholders, including exporters, importers, foreign investors, and financial institutions.

One of the key features of Ethiopia's current foreign exchange regulations is the full liberalization of current account international payments. This liberalization has opened up avenues for unrestricted payments for various purposes. Importers can now make payments for all goods, barring those deemed detrimental to public health or national security. These payments can be made through various means, including letters of credit, cash against documents, and advance payments. The regulations also permit the import of second-hand goods, including various used vehicles, machinery, and equipment, with foreign exchange availed in relation to their service year after manufacture and the original FOB price.

On the export front, the regulations allow for the export of goods and services through various means, including letters of credit, cash against documents, advance payments, and consignments. Payments for services associated with these exports are also permitted. Small items of limited value and quantity can be exported without foreign exchange repatriation requirements.

To encourage and support the export sector, the foreign exchange regime allows exporters to open a retention account. This account enables them to hold a specified amount of their export earnings for a defined period and use its forex holdings for its export business promotion. A credit guarantee scheme is also available to exporters to back the export sector.

The regulations also cater to non-resident Ethiopians and non-resident foreign nationals of Ethiopian origin. These individuals are permitted to open a foreign currency account at any authorized commercial bank in four major international currencies. The deposits in these accounts can earn interest based on the arrangements made with commercial banks. However, Ethiopian nationals resident in Ethiopia or resident Ethiopian companies are not allowed to maintain a bank account abroad without National Bank of Ethiopia authorization.

The foreign exchange regulations also permit payments through credit cards for catering services and the purchase of goods by travelers and tourists. Credit card holders can also obtain local currency from banks by making use of their credit cards. Foreign cash notes and travelers cheques are also acceptable for payments at hotels certified by the Ethiopian Tourism Commission, duty-free shop operators, Immigration Office, Civil Aviation Authority, and airline ticket offices.

Forex bureaus established at commercial banks are allowed to engage in the buying and selling of major convertible currencies. They operate in spot transactions with immediate delivery of currencies bought or sold. They can also sell and/or buy cash notes and travelers cheques at displayed exchange rates before any subsequent change.

The regulations recognize and register any capital inflow by foreign investors at the initial stage of investment, including investments made through a concessionary or a partnership agreement with the government or with an autonomous institution. Ploughed back profits are accorded similar treatment. Capital gain on asset revaluation of a business enterprise may be repatriated by fulfilling the necessary requirements. Loan and suppliers credit obtained by investors are registered as capital inflows by the National Bank of Ethiopia. Foreign investors who earn profits or dividends from recognized investments and services are allowed to remit abroad.

In conclusion, the current foreign exchange regulations in Ethiopia provide a robust framework that balances the need for economic liberalization with the imperative of maintaining financial stability. By facilitating a wide range of foreign exchange transactions, these regulations play a crucial role in promoting Ethiopia's economic growth and development.