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Dawit Endeshaw
One of Addis Ababa’s black markets for hard currency is also one within reach of the several branches of both public and private banks.
People walking by are approached by “brokers” and people seek out these exchange centres by foot or car and make their deals inside cars or in stores. When Fortune visited such a place for about half an hour on April 23, 2015, it observed 14 vehicles stopping by for transactions.

For a country that is increasingly constrained by hard currency shortages, with the ever widening balance of trade gaps, low export revenue and remittance flows, the shortage may appear to be minimal when visiting these places.

But this shortage has forced importers to under invoice what they purchase from abroad. For instance, if an importer wants to purchase any commodity at a certain price, he can have access to certain amounts of foreign currency from banks by requesting a Letter of Credit but what the banks offer most of the time is less than what imports need.

Due to this shortfall, importers are forced to under invoice their commodities and collect the remaining currency from the black market so they can pay their suppliers in cash.

“It is really hard to access hard currencies from banks these days,” said one importer who declined to be named.

Banks are facing shortage due to a decline in revenue from coffee exports and the low flow of remittances via the formal market.

Acknowledgement of this shortfall was shared by a senior manager of a private bank, who explained that the shortage was becoming severe.

The bank manager pointed to the unbalanced demand and supply of foreign currency with the increased number of government projects causing a shortage while having a major share.

It is a common scenario to have a shortage of hard currency throughout the financial sector in Ethiopia. But the time-line of the shortfall is unique in that it is unusually long; it has almost been three months since the shortage showed its first signs for this year, said the manager.

“Moreover, the time table in which those importers requested to open LC and the time when they finally got it is also very long,” the bank manager added.

Banks nowadays issue LC for their customers without having foreign reserve in their coffers and when they are asked to settle a payment to banks abroad, where the suppliers of imports reside, they have a hard time doing so. The importer claims that this problem often leads to tension between him and his suppliers

“I paid the Birr equivalent of US$30 000 to the bank and the bank had issued the letter of credit. In turn, the bank is expected to pay the money to my supplier in hard currency,” he said.

However, it has been more than one month since the bank – which the importer declined to name – failed to fulfil its commitment. Such cases have made foreign banks lose interest in working with Ethiopian banks. There are even a few foreign correspondent banks that have sent letters of warning to their client banks in Ethiopia due to the failure by the latter to settle payments after issuing import LC.

CommerzBank Ag is one of the banks that have issued such a letter to its customer banks in Ethiopia to settle their payments, according to the same bank manager.