The Exchange Rate: Why it Matters for Structural Transformation and Growth in Ethiopia

Haile, Fiseha

doi:10.1596/1813-9450-8868

Cited by 9 publications

(6 citation statements)

References 19 publications

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“…In the past 20 years, Ethiopia's economy has grown at a faster rate. Despite rapid economic growth, the landlocked country of more than 100 million people is heavily affected by a foreign exchange shortage (Haile, 2019). Even though this threatens local and foreign investments and the economy, it provides a lucrative opportunity for money launderers.…”

Section: Shortage Of Foreign Currency Reservementioning

confidence: 99%

Why money laundering is nurtured in Ethiopia?

Gobena

2021

JMLC

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Purpose The purpose of this paper is to examine the divers and facilitators of money laundering in Ethiopia. Specifically, it looks at the risk factors that existed in the country’s economic and political system, which provide an appealing environment for money laundering to grow. Design/methodology/approach This qualitative study relies on primary data generated from interviewees drawn from the National Bank of Ethiopia, Ethiopian Financial Intelligence Center, Ethiopian Customs Commission, selected financial institutions and certain non-financial businesses and professions and law enforcement agencies, as well as secondary data from government reports, media press, statutes and other online and offline sources. Findings This study finds that the risk factors for the growth of money laundering in Ethiopia are highly reliant on the country’s economic and political system. Accordingly, the nature of Ethiopia’s economy, which is cash-intensive, loosely regulated economic growth and the raise associated criminality, the development of underground banking activities, scarcity of foreign currency reserves and the existence of societal demand for illicit goods and services are all risk factors for the growth of money laundering. The raise of an elite cartel model type of systematic corruption, limited institutional capacity to prevent and suppress money laundering and the absence of a national identity card system are also identified as risk factors for the rife of money laundering in Ethiopia. Moreover, the geopolitical location of the country, its porous borders, limited cross-border cooperation and information sharing add further fuel to the vulnerability of the country to money laundering and associated predicate offense. Originality/value To the best of the author’s knowledge, this paper provides a first-of-its-kind analytical perspective on the risk factors for the raise of money laundering in Ethiopia.

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Section: Shortage Of Foreign Currency Reservementioning

confidence: 99%

Why money laundering is nurtured in Ethiopia?

Gobena

2021

JMLC

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“…One such model estimates that in Ethiopia, a one percent devaluation of the real exchange rate is estimated to boost exports by one-half percent, with larger effects in manufacturing (one percent) than in agriculture (one-third percent). Implementing a lower exchange rate would require an appropriate monetary and fiscal framework and represents trade-offs with respect to the local currency value of public capital imports and external debt (Haile, 2015). Other macroeconomic effects, for example on inflation, need to be managed closely as well.…”

Section: Increasing Competitivenessmentioning

confidence: 99%

Country Partnership Framework for the Democratic Republic of Ethiopia for the Period FY18-FY22

2017

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II. COUNTRY CONTEXT AND DEVELOPMENT AGENDA Social and Political Context geographic and Regional Context Ethiopia is a large and diverse country, spanning a land mass of more than 1 million km 2 and an estimated population of approximately 92 million (World Bank, 2016), more than 80 percent of whom live in rural areas. With an annual population growth rate of 2.5 percent (2015), Ethiopia's population is estimated to reach 150 million by 2035 (World Population Prospects, 2015 Revisions, United Nations (UN)). Ethiopia is a country of 98 nationalities and peoples, with roughly 93 languages spoken. Landlocked Ethiopia, surrounded by a number of fragile and conflict-afflicted states, plays an important role in promoting regional integration and mitigating regional conflicts. Ethiopia's geopolitical landscape is complicated by fragility and conflict in neighboring countries and the resulting flow of refugees who are fleeing those conditions. Relations with Djibouti are especially close, as Ethiopia relies on Djibouti for 90 percent of its land-based trade while Djibouti receives power and fresh water from Ethiopia. Since the 1993 independence of Eritrea, when Ethiopia lost access to the sea, most trade-related cargo is shipped via Djibouti. In order to improve regional stability, Ethiopia has supported peace-building efforts in Somalia, Sudan and South Sudan by mediating peace talks and contributing personnel to peacekeeping operations. Ethiopia is a member of regional communities such as the Common market for Eastern and southern africa (COmEsa), the Intergovernmental authority on Development (IgaD), and the sana'a Forum for Cooperation (sFC). According to the Regional Integration Index 2016, 3 Ethiopia is an average performer on regional integration among IGAD countries, and the lowest performer overall on regional integration within COMESA. In terms of trade relations with its neighbors, exports to regional markets (Somalia, Djibouti, Sudan, Kenya and Egypt) account for approximately 20 percent of Ethiopia's total exports. Major exports to Somalia included khat, live animals, and fruits and vegetables; while key exports to Djibouti were khat, live animals, fruits and vegetables, and electricity. Beyond official statistics, there is significant cross-border trade that is not measured but is an important source of income for border communities. Ecology and Resilience The nature of agriculture-based livelihoods varies considerably across the country based on agro-ecological conditions. The wet highlands, predominantly in the central, northern and western parts of the country, are home to 80 percent of the population who are primarily dependent upon rain-fed cultivation. The eastern and southern parts of the country are hot, arid lowlands, which are home to mobile pastoralists. Climate change has already had an impact: temperatures have increased Country Partnership Framework for the Federal Democratic Republic of Ethiopia for the Period FY18-FY22 68

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“…3,[8][9][10] Empirical studies conducted in developing countries in general, and in Ethiopia in particular, the impact of devaluation on the balance of payments, and output growth reveals diverse perspectives and mixed results, which is positive and negative effect. Studies such as, 6,[11][12][13][14][15][16][17][18] devaluation affects positively the balance of payment trough improving trade balance, current account balance and output growth. However, several other studies [19][20][21][22][23][24] suggest that devaluation negatively affect trade balance in the short run and had no any significant gain in the long run, and output is negatively affected both in the short run and short run, contractionary impact.…”

Section: Introductionmentioning

confidence: 99%

Unravelling the devaluation puzzle: Empirical insights into the transmission channel on balance of payments and output in Ethiopia

Maru Ayinewa,

Belay Zegeye,

Ayanaw Alemu

et al. 2024

F1000Res

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Background Empirical studies on the impact of devaluation in developing countries, including Ethiopia, have revealed diverse and mixed results. The effects can be positive or negative depending on the specific economic context and policies in place.This study addresses the devaluation puzzle by providing a more comprehensive and nuanced understanding of how devaluation affects the balance of payments and output. Methods To achieve this, we employ a recursive structural vector autoregressive (SVAR) model focusing on Ethiopia from 2001Q1 to 2023Q4. Results The findings reveal that exchange rate shocks negatively affect the balance of payments in both the short and long run, with a greater impact observed in the short run. Shocks in other variables, such as foreign exchange rate reserves, inflation, and interest rates, exert a stronger influence on the balance of payments than the exchange rate itself in the long run. In addition, shocks in the exchange rate significantly impact foreign exchange rate reserves in the long run, highlighting the complex dynamics of exchange rates and the indirect nature of the exchange rate channel. Exchange rate shocks also negatively impact output growth in both the short and long run. Conclusion The study concludes that devaluation has a contractionary effect through various channels. Devaluation increases the money supply, leading to inflationary pressures and a decline in output. It also increases interest rates, which further reduces output. In addition, devaluation reduces foreign exchange reserves, resulting in a fall in the balance of payments and a decrease in output. We suggest policymakers prioritize exchange rate stability through practical monetary and fiscal policies. In general, International financial institutions, particularly the National Bank of Ethiopia, should reconsider their devaluation-focused policies, considering the complexities and potential negative consequences associated with devaluation.

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The Exchange Rate: Why it Matters for Structural Transformation and Growth in Ethiopia

Cited by 9 publications

References 19 publications

Why money laundering is nurtured in Ethiopia?

Why money laundering is nurtured in Ethiopia?

Country Partnership Framework for the Democratic Republic of Ethiopia for the Period FY18-FY22

Unravelling the devaluation puzzle: Empirical insights into the transmission channel on balance of payments and output in Ethiopia

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