Ethiopia: Devaluation Shockwaves

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Ethiopia: Devaluation Shockwaves

Unread postby selam sew » 27 Oct 2017 00:31

Ethiopia: Devaluation Shockwaves

By Dawit Endeshaw



Effects of the 15 percent devaluation measure, which was announced last week on Tuesday, are slowly dripping into market. Upon the announcement, economists and commentators opined that implementing the measure at this particular time could have some dire impacts on the normal functions of the market. It appears that they are right; this week Dawit Endeshaw browsed through the market and found out that the effect is already felt in construction materials, electronics and the food and beverage industries in Addis Ababa.

Yosef, a young man in his 20s, is a procurement officer at a private construction company where he handles assortments of purchase needs on behalf of the company he represents. He majorly handles procurement of construction input materials.

His company is now working in a number of building construction across the country. In this regard, Yosef’s role is considered to be a bloodline for the construction projects undertaken by his company.

The Reporter met him on Friday morning around Megenagna. Over the past few days he was busy purchasing reinforcement bars for his company where his efforts almost bear no fruit.

In the sunny morning of October 20, Yosef has to run from one shop to another in order to get a fair price.

Unfortunately, reinforcement bar traders around Megenagna gave him all sorts of excuses for jacking up prices on their product after they expressed their commitment to supply the bars. Basically, he has been collecting proforma invoices from all the traders so that he would have the opportunity to compare price as well as get better quantity.

Unfortunately, he could not manage to get any of the suppliers to sell the bars as per their commitment.

Most of them changed their invoices frequently; even in one day. “They are increasing their prices day by day,” he said.

According to him, most of the traders attribute the price escalation to the recent devaluation of the Birr which was announced by the National Bank of Ethiopia (NBE) on October 10, 2017. The 15 percent devaluation of the Birr which came day after the opening of the parliamentary session is now affecting almost all trading activities across Addis Ababa, which is also feared to transcend to the other parts of the country.

As the result of the currency devaluation, the price of steel bars is now increasing. In addition to that, not only buyers but retailers are also complaining about the shortage of supply even from local producers.

In addition to the ongoing trend of price increment of bars over the past successive months in the international market, the current devaluation has also come up with additional burden on buyers’ pockets in every market.

One of the retailers who The Reporter met around Megenagna confesses that there is an increase in the price of steel bar following the devaluation of the currency.

According to an assessment made by the Trade Practice and Consumers Protection Authority, the price of reinforcement bars, not only locally made but also that of imported ones, show a significant increment.



“The price increment is more visible on the imported bars,” Itisa Demea, a director at the Authority, told The Reporter.

According to an assessment made by the authority this week, the price of bars per Berga, (a unit used for measurement of bars) has already increased from 45 birr to 155 birr.

This increase was exhibited on both locally made as well as imported products, according to Itisa.

He also said that the same trend is observed in the price of other construction materials such as cement.

The cement market, which is mostly dominated by local producers, is now feeling the pinch of devaluation.

There is at least eight birr to 10 birr increase per one quintal of cement at the retail market.

The factory gate price of cement also showed a marked increase in recent days jumping from 215 birr/quintal to 219 birr/quintal, according to retailers.

Kalkidan Alemayehu is among the dozen or so cement retailers located around Megenagna confirming the recent cement price increase. However, Kalkidan and his friends also claim that demand from the market is weakening in response to the price hike.

Itisa agrees with the assessment of increasing cement price. Nevertheless, he is reluctant to quote the magnitude of the increase since it requires a detailed study.

As far as market demand is concerned, Kalkidan attest to the situation citing her own experience where she has bought 400 quintals of cement for retail a week ago and sold only 25 out of it.

So far, the complaints coming from customers to the Authority show that there are also adjustments made on electronics, food products as well as beverages.

“We are receiving a number of complaints which we will look into in the coming days,” Endalkachew Tsegaye, communication director of the Authority, said.

The Authority has the mandate to investigate and institute charges with regard to unfair trade practice and uneconomical price increment.

According to Endalkachew, his office received a tip from informants about an increase in the price of food product such Anchor powder Milk.

“We will investigate if the adjustment was made by the manufacturers themselves or by the distributors,” he said.

Zeco Kassim, General Manager of Anchor Milk, denies the accusation saying that his company did not make any price adjustments following the devaluation.

As of now, we have an input for our product which will sustain the price for the coming one month, he said. So we have no plans to increase the price at least in the coming few weeks.

The Authority has the platform for consumers to reach out to it in case of complaints including hotline numbers— 8077 and 8478.

Endalakachew further stated that traders are not allowed to horde any products to create an artificial shortage and increase prices.

However, he admits that already there are unjustified increases in prices, especially with regard to construction materials.

Just hours after The Reporter visited Megenagana, the Authority has raided and shutdown shops which were allegedly suspected of increasing prices.

Following the devaluation, it was announced that a task force under the Ministry of Trade is going to be established to take action against traders raising prices unreasonably.

The Addis Ababa Trade Bureau also organized a taskforce to take action against those considered illegal. In this respect, this week, the taskforce has already raided six warehouses in Merkato, which were suspected of hoarding food and beverage as well as increasing prices.

“The taskforce will continue to take actions,” Belayneh Woldesenbet, communication director of the Trade Bureau, said.

Yet, the increment of price in a number of products seems to have continued over the week and customers are feeling the brunt of this dynamics.

A case processor of the Authority has already received a handful of complaints from consumers which will soon be brought before the Trade Competition and Consumer Protection Appellant Tribunal.

One of the complaints brought to the Authority’s case processor is a disagreement between a car sellers and buyer.

The case arose when a car seller refused to accept price for which he signed a contract with the buyer before the devaluation, according to source close to the case. Instead he demanded an adjustment on the initial price.

The Reporter was able to ascertain that there is already an increase on the price of cars which were imported prior to the announcement of the devaluation measure. In certain instances, an increase of up to 100,000 birr was observed on cars imported before the measure. Not only that, there is also an increase on the price of tires going up to 1,000 birr per tire.

The devaluation of the currency is also expected to affect a number of public procurements by Ethiopian government.

To recall, just three week ago Agricultural Business Corporation has award OCP, Morocco-based fertilizer company, with a 230-million-dollar contract to supply three types of fertilizers to the Ethiopian government.

The Corporation has agreed to buy 750,000 metric tons of NPS, NPSB and NPSZnB fertilizers from OCP after the company listed the winning price for the supply two weeks ago.

In addition, the Addis Ababa City Public Procurement and Property Disposal Service is on its way to purchase 50,084 tones of reinforcement bars as well as around 7.3 million quintals of cement.

Following the devaluation, the Agency has requested a direction from the city’s Finance and Economic Development Bureau on how to proceed with the purchase.

As far as ongoing procurement processes are concerned, Woubshet Adfres, communication director of the Finance and Economic Development Bureau, told The Reporter that there will not be any price adjustments on ongoing public procurements if the concerned product is already imported.

If the product or raw material was already imported before the devaluation, suppliers have no right to increase prices, he said.

The increase in the price of construction materials is also feared to raise the cost of housing projects: both private and public.

In this respect, Ethiopian Contractors Association is contemplating to appeal to the Prime Minister Office seeking for amicable decision.

“We are experiencing an increase in almost all construction materials,” said a contractor who is also close to the Association.

The Association in the coming few weeks will do a study on the issue and will present it to government, he said.

The devaluation though will have a positive impact on the export revenue it will also have a negative pressure on import cost, according to commentators.

It will contribute to the required economies of scale by exporting and selling mobiles domestically, said a representative of local mobile assembling company.

“We will unfortunately be affected as we still need to import the raw material which makes up most of the cost,” he said.

As far as the long term impact of the devaluation is concerned, the devaluation coupled with the expected increase in the price of fuel will trigger inflation according to Alemayehu Geda, professor of Economics at the Addis Ababa University,

If the price of fuel increases by 15 percent the price of both imported and domestic products would increase by 30 percent, according to his estimates.

In addition to the ongoing short impact of the devaluation, the real pinch is expected in the coming few months.

Source: https://www.linkedin.com/pulse/devaluation-shockwaves-dawit-endeshaw/


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