Experts at Access Capital, a well-known economic research firm in Ethiopia, were taken by surprise when they learned about yesterday’s 20 percent devaluation of Ethiopian currency exchange rate.
In an analysis released today, the firm said: ” The magnitude of the adjustment is a big surprise, not least because most macroeconomic indicators did not show a need for a sharp devaluation at this particular time.”
IMF, on the other hand, came out in favor of the devaluation, saying, “it will help bolster Ethiopia’s competitiveness.” In June this year, the IMF recommended a 10-percent devaluation of the birr.
The following is a summary of Access Capital’s analysis:
In a very bold and unexpected move, Ethiopia’s central bank devalued the Birr by 20 percent on September 1, 2010. The magnitude of the adjustment is a big surprise, not least because most macroeconomic indicators did not show a need for a sharp devaluation at this particular time.
Given the apparently little justification for a large devaluation from a short-term macroeconomic perspective, we see more longer-term and structural motives for the authorities’ actions. More specifically, we think there is now a conscious effort to experiment with a deliberately undervalued exchange rate (the “China Model” one might call it) and to pursue a more aggressive strategy of import substitution. Both these efforts can be seen as being in line with the main objectives of the authorities’ recently released draft Five-Year Growth and Transformation Plan.
The impact of the exchange rate adjustment will be quite adverse for several segments of the business community, but most of the encouraging trends observed with the steady depreciations of the past year—strong export growth, slower import growth, and improving foreign exchange availability—will all be reinforced.
Looking ahead, we think that after a nearly two-year period of rather sharp movements in the rate, economic policymakers will henceforth seek to provide an extended period in which the Birr rate is relatively stable and predictable. Thus, despite the authorities’ demonstrated ability to surprise, we would venture to say that the regular monthly depreciations of the past will be discontinued from here on and that the exchange rate will stay within a very narrow range for the coming year.
Click here to read the full report.
11 thoughts on “Devaluation of Ethiopian birr took local economists by surprise”
Ethiopian people better understand this. There is nothing to gain from devaluing currency. Look at histories of other nations and what happened to them after devaluation. Weyane government might paint beautiful picture of this devaluation to convince Ethiopians. They need to be educated how they will be devastated by this. Why aren’t rich nations devalue their currency, it is because it is not good for businesses of their citizens and it will under develop their nations because outsiders are the only ones that benefit from it. Yest, IMF and World Bank advice so that corproations can enrich at the expense of Ethiopians. This will also benefit countries like Egypt and Eritrea which desire the under development of Ethiopia.
Ermias Amelga of Access Capital has it wrong. For Access capital caters to Diaspora Ethiopians as far as business core is concerned, hence to try to calm everyone down is a task for Access capital. Almost all those people that invested with Access capital in the preceeding months are goint to feel cheated and those that were planing to invest in the present time are going to hold back for they do not know how far Woyane is bending Birr.
Good job Ermias, for tryuing very hard to calm my aprehenssion, but I am still worried about what the regime will do once I invested my money there. Its like hitting every Diaspora Ethiopians that invested in Ethiopia with a 20% asset devaluation. If I thought my home worth 1,000,000 BIRR, all of a sudden its worth 800,000 BIRR.
Access Capital – the Ethiopian one – is not a neutral observer in this case. So, its analysis is suspect. Access is the owner of Access Real Estate, a company that builds luxurious condominiums in and around Addis. In addition, Access Capital has a bank., which it originally called Access Capital Bank. Because there are other well established and registered organizations by that name, Access Capital was forced to change its name to Zemen Bank.
What that means is when Access says something it doesn’t necessarily mean what it says is wrong but one should also remember that Access is involved in, among others, the banking and real estate industry in Ethiopia.
I think and strongly believe that the birr should and must be devaluated even lower with a targeted rate between 25-31 to a US dollar and depending on how the economy shrugs itself off being too dependant on agriculture rather on industrial goods it has the potential of pegging itself to the US dollar. And it can be done once this goon gives way to a more democratic leadership. And in my previous comment, I said that some people in and around the inner circle of the ruling clique will be made filthy rich. And to verify my concern and fear, I made some calls around Addis and Dire Dawa. I was given a very strong hint that days and weeks leading to this sharp devaluation, a lot of US hard currencies were being wipe out clean inside the country by someone linked to the authoritative leads. That just twisted my stomach and took the wind away of my breath. This is it. Out of Dedebit, tycoons are being made right in front of an agonized population. Remember these are individuals who skimmed away millions of US dollars from a starving and dying people during the 1980’s famine. Now, they are diverting all the proceeds of such expected devaluation into their coffers. And there is nothing you can do about it!!! Nothing!!!!!. Thank you Shawel, Thank you Lidetu, Thank you the Lenchos, Thank you Osman, Thank you Mesfin. Brothers Elias and Al. GM, Don’t be surprised if some foreigner buys a section of your neighborhood sooner or later. His or her name is…. you know who…Goons from Dedebit or one of them beer-gutted hoddams. And they have class and the nerve when they invest in real estate overseas!!! See they are not like you and me who think a lot before spending our hard-earned money. Easy money goes they say!!!! They buy in millions!!!! And there is nothing anyone can do about it. Even IRS. There are just too many houses in the market gathering dust. Some one has to buy them!!!!!
What Does Devaluation Mean?
There are two implications for a currency devaluation. First, devaluation makes a country’s exports relatively less expensive for foreigners and second, it makes foreign products relatively more expensive for domestic consumers, discouraging imports. As a result, this may help to reduce a country’s trade deficit.
A deliberate downward adjustment to a country’s official exchange rate relative to other currencies. In a fixed exchange rate regime, only a decision by a country’s government (i.e central bank) can alter the official value of the currency. Contrast to “revaluation”.
–Investopedia
Ittu Aba Farda @#4 .. Anjeten new yaraskew…devaluation is not always bad.. and its not even a matter of bad or good..in case of Birr… if you look at it from our economic standing now.. i say might be even at a 25 to 30 to a dollar rate..and IMF and WB.. would of course like to see it devalued as they would want to make sure Eth pays for every cent they lend us.. and they ascertain that by pushing for a devalued birr. so i say woyane was pushed to devalue the money ( so much for the double digit growth ha ha)and while they are at it.. they’re gonna benefit from it. refer to #4 above to see how they do it.
Today,eveything and anything that is available above and below the lands in Ethiopia is owned,controlled,and run by Zinawians.For two decades,households in Ehtiopia never have throwen away leftovers because they never have had more than a meal a day.Seeing is believing.Zinawians have everything cattered to teir taste while the starved homeless are fighting for their lives with dogs,rats and cats because very little is available in the municipal garbage bins.
Zinawians have stached away billions of dollars off shore and exporting goods and commodities from the manufacturing industries they built to Ethiopia and are making millions of dollars in profit.
They are exporters too:they sell land,they sell gold,they sell rice,they sell babies,and they sell little girls and little boys.Zinawians,they did not only devalue the Birr,they devalued the lives of Ethiopians.
In Zinawians’ mind Ethiopia does not exist.But there is a business empire of 1,127,127 square kilometeres they created for themselves;there is two economic system one for themselves and another one for the rest.
Today,everything and anything that is available above and below the lands is owned,controlled,and run by Zinawians;they sell lands,they sell gold,they sell rice,they sell babies,and they sell little boys and little girls.
Zinawians live in extreme luxury and have everything cattered to their tastes;they don’t throw away leftovers,they sent it to landfills.From among millions of Ethiopians,the homeless boys and girls are the hardest hit because they fight for their life with rats,dogs,insects,and cats.In Zinawians’ world,you see what you don’t get,but you give what you have.Their ill-gotten wealth is inacceable to Ethiopians;they have kept millions of dollars in their bank account and export goods and commodities back to Ethiopia from manufacturing industries they own off shore.They are chopping off Ethiopia with double-edge knives till it is fallen pieces.Shockingly,they are not only devaluing Birr,they are devaluing the lives of Ethiopians.Whose country Zinawians are looting anyway?
IMF Welcomes Devalued Birr
dear fellow citizens,
Good Heaven ! what is it that we are hearing these 4 or 5 days !? Is this so called woyane not aware yet that they are no longer in the jungle what a hell is this ! Meles and your cronies, have to know by now that running a country is not like that of gambling with the cheap chicken life of woyane elements .you Woyane leaders are proved to be incompetent in the 20-year long life of the country.Mels, enough is enough we are tired of your endless lies and empty rehtoric. Please run away in peace with the enormous amount of money you and your wife have illicitely robbed from the people. woe betide you, if not as Gadafi, the same fate shall befall you!
Hello! eedegfg interesting eedegfg site! I’m really like it! Very, very eedegfg good!