Ethiopia: Blocking Black Money –

by Zelalem
Photo: Radio Okapi

(File photo).

It was only a few days that Ministry of Finance and Economic Cooperation divulged that the recent devaluation of Birr by 15 percent is leading to increasing export and remittance earnings over the last few months. Particularly the latter has also increased as many people start sending money via formal channels.

Remittance is usually considered as low-hanging fruit for country’s forex demands. The amount of remittance earning sometimes equates with and other times exceeds the country’s export earnings.

But, still 70 percent of the total remittance transaction takes place via informal channels, as sources show.

And this would pose possible risks of foreign currency shortage to the country, making fierce fight against this channel a timely task.

Black market is even fomenting some of the main challenges of the country facing in terms of contraband. The government also stressed that illicit and black market has been source of rivalry and conflicts in some corridor of the country.

According to Developing Market Associates (DMA) Global Chief Executive, Leon Isaacs, sending money to the sub-Saharan Africa is too expensive compared to other parts of the world. Sending money to Ethiopia is still lower than other African countries but it is still higher than the average outside of the continent, he wrote.

If it is reduced less than 2 up to 3 percent from the average 10 percent, customers will start to use more formal way, according to him.

Informal ways still stands a prominent way for Ethiopians to send money back home, according to Isaacs. Informal flows not only present a loss of foreign exchange for the government, but also reduce the opportunities to encourage investment while complicating the effort of tackling money laundering and terrorist financing.

As it may seem rational for some reasons that the Ethiopian Diaspora tend to use informal channel due to lack of access to services in the sender and receiver markets. High direct and indirect costs associated with formal channels force people to send remittance informally in addition to the regulatory barriers for undocumented migrants to use formal ways.

Some countries do not allow undocumented people to send money formally even if they wish to. In case of Ethiopia, many Ethiopians could be face the same fate to send money legally. In this regard, Ethiopia, under many conditions can, negotiate agreements with other countries to find the means for its illegal migrants to be documented in the first place and then send money back home via formal channels.

To address the problem some banks including Commercial Bank of Ethiopia are trying to open agents oversees.

“In a move to discourage the use of informal channels and encourages formal ones and facilitates issues relating to money transfer cost, local banks are made to rule out commission payments. Remittance money service providers are also made to post their fees on the website of the National Bank of Ethiopia (NBE) so that the senders could choose the best available option,” NBE Senior Adviser Elias Loha told The Ethiopian Herald.

According to him access to bank is improving through time. The volume of remittance has already reached four billion USD. Diaspora’s engagement in terms of investment and remittance is seeing upward trajectories as well.

NBE is making policy adjustments to encourage the use of formal channels of money transfer. Of course, the informal channel has significant share at this time. “We need to improve accessibility and reliability of banking services there by increasing the number of people using informal ways to switch to formal ones.”

Introducing new methods of money transfer with the help of modern technology should be at the top of agenda of institutions working on the area, he added.

Diaspora Engagement Directorate Director at the Ministry of Foreign Affairs, Demeke Atenafu for his part stated, the move emboldens the Diaspora to send money through formal channel and increase the volume of remittance .

“One of the priorities of our embassies is to strengthen link between money transferring agents and Ethiopian banks. The competition will reduce transaction costs and the Diaspora can also have access to bank services easily,” he said.

Conducting awareness raising works and showing the risks involving in using informal channels are also part of the objectives of the embassies in addition to effort of strengthening the link between the money transfer agents where the Diaspora reside and the local banks. This would widen alternative banking services for the Diaspora community, he indicated.

By strengthening the measures taken so far, there are more rooms to increase remittance income and use it for the socio-economic development of the country and its investment activities.

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