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The foreign exchange regime of
the country, reflecting the economic setting, the economic management
system, the economic policy of the different governments in power, the
structure and level of the economic development of the country, the
performance of the external trade sector and balance of payments position
of the economy, etc has experienced gradual changes and openness over the
past four decades. Up to the early 70's, the size of the economy remaining
very small and the then government pursuing a capitalist economic system,
the country had a foreign exchange regime that was designed to serve the
needs of a very small open economy and the simple managed foreign exchange
regime stayed very static and unaltered for many years. But later with the change in
government in 1974 that adopted a command economic management, the fixed
foreign exchange regime was continued and was made to suit the pursued
economic philosophy of the socialist military government where foreign
exchange, like any other resource in a socialist economy, was channeled
and directed to the various economic uses through an administrative
mechanism. And to effect
control on the allocation and utilization of the foreign exchange resource
of the country, the then government issued a foreign exchange control
regulation in 1977, which remained in force up to 1991. After the demise of this government and the advent of the
EPRDF government, which by adopting a non-regulated economic system
followed a market oriented economic management, the foreign exchange
regime, over the past fourteen years, has been liberalized in gradual
steps in line with the successive notable economic and external sector
reform measures. As a result,
numerous foreign exchange transaction liberalization steps have been
undertaken in the foreign exchange regime of the country, albeit on a
piecemeal basis, which have necessitated the need to collate and compile
these numerous amendments and produce one consolidated set of foreign
exchange transaction directives. More importantly, as significant parts of the micro
management and operational functions of foreign exchange transactions were
transferred from National Bank of Ethiopia to commercial banks via
Directive No. FXD/07/1998 issued on August 31, 1998, it has now become
necessary and essential to put together all the amendments and newly
issued ones in one document for ease of reference, use and knowledge of
the rules of the foreign exchange regime of the country.
To this end, all foreign exchange transactions liberalization made
so far and the several amendments made to the foreign exchange control
regulation issued in 1977, which is not yet wholly rescinded, have been
collated and assembled to produce a consolidated set of foreign exchange
transaction directives. The consolidated directives have
six parts and are organized as follows: Part I contains the foreign
exchange control regulation issued in 1977 where significant provisions of
the regulation, especially those related to capital account control, are
still intact and in force. Part
II indicates amendments made to the exchange control regulation. Part III covers the directives which transferred a major part
of the micro foreign exchange functions from National Bank of Ethiopia to
commercial banks. Part IV
shows the subsequent amendments made to directives No. FXD/07/1998 that
shifted a considerable aspect of the micro management of foreign exchange
to commercial banks. Part V
provides directives issued on various foreign exchange operations and
transactions that are carried out by commercial banks.
The last part, part VI, contains amendment of the various foreign
exchange functions and transactions directives. At last, these consolidated directives are believed to give
detailed information on the foreign exchange transaction rules and
procedures of the country, and provide a better understanding of what the
country's exchange regime is like. The
directives are also expected to serve better the commercial banks, the
business community, domestic and foreign investors, importers, exporters,
foreign exchange sellers and buyers, economic agents and individuals who
hold foreign currency accounts in domestic banks, those economic agents
and individuals who require foreign exchange for various current
international payments or transactions, etc. by making it possible to
refer to one consolidated set of directives instead of having to go
through the several fragmented pieces of regulatory foreign exchange
legislation made over the past fourteen years. Highlights of the current foreign exchange regime of the
country are briefly stated in the following section. HIGHLIGHTS OF THE CURRENT FOREIGN EXCHANGE
REGULATIONS OF THE COUNTRY
The current foreign exchange regulations fully liberalize
current account international payments and transactions for various
purposes. Accordingly, the
regulations allow payments for all imports of goods, except goods that are
believed to be detrimental to the health of the public and security of the
nation. Payments for imports
can be made by letter of credit, cash against documents, advance payment,
etc. Imports of second-hand
or used goods are also allowed, more specifically various used vehicles,
machinery and equipment, in which foreign exchange is availed to these
items in relation to their service year after manufacture and the original
FOB price. Similarly, exports of goods and
services are allowed through letter of credit, cash against document,
advance payment, consignment, etc., and payments for services associated
with these exports are also permitted.
Small items of limited value and quantity are also allowed to be
exported without foreign exchange repatriation requirements.
With a view to encouraging and supporting the export sector, the
foreign exchange regime allows exporters to open a retention account and
hold a specified amount of their export earnings for a defined period and
use their forex holdings for their export business promotion. A credit guarantee scheme is also made available to exporters
to back the export sector. Furthermore, the exchange regulations permit transfers for
various services, including money drawn from Non-Transferable Accounts,
Non-Resident Foreign Currency NR Fcy, Non-Resident Transferable Birr (NRT),
Non-Resident Non-Transferable (NRNT).
Exchange transactions also allow salary remittance by foreign
employees, insurance payment, re-transfer of unutilized foreign currency
holdings, etc. Non-resident Ethiopians and non-resident foreign nationals
of Ethiopian origin are permitted to open a foreign currency account at
any authorized commercial bank in four major international currencies with
a limit on the amount that shall be deposited in current account.
The deposits shall earn interest based on the arrangements made
with commercial banks. On the
other hand, no Ethiopian national resident in Ethiopia or resident
Ethiopian company is allowed to maintain a bank account abroad without
National Bank of Ethiopia authorization.
But, government offices, organizations and companies which have
branches or offices abroad and which are permitted by a competent
authority to operate these offices abroad are admitted to open the account
they deem necessary. On
winding up the business, they are, however, required to close the account
and report to National Bank of Ethiopia. Payments through credit cards can be made for catering
services and purchase of goods by travelers and tourists, and credit cards
holders can also obtain local currency from banks by making use of their
credit cards. Foreign cash
notes and traveler's cheques are also acceptable for payments at hotels
certified by the Ethiopian Tourism Commission, duty free shop operators,
Immigration Office, Civil Aviation Authority and airline ticket offices. Forex bureaus established at commercial banks are allowed
to engage in the buying and selling business of major convertible
currencies, operated in spot transactions with immediate delivery of
currencies bought or sold, sell and/or buy cash notes and travelers
cheques at displayed exchange rates. Any capital inflow by foreign investors is recognized and
registered at National Bank of Ethiopia at the initial stage of
investment, including investments made through a concessionary or a
partnership agreement with the government or with an autonomous
institution and similar treatment is accorded to ploughed back profits.
Capital gain on asset revaluation of a business enterprise may be
repatriated by fulfilling the necessary requirements. Loan and suppliers' credit obtained by foreign investors are
registered as capital inflows by National Bank of Ethiopia.
Foreign investors who earn profits or dividends from recognized
investments and services are allowed to remit abroad without any limit by
presenting the required documents or statements. In addition, firms, companies, and business entities
engaged in manufacturing or business activities whose products are sold to
external markets generating foreign exchange income are allowed to have
access to external financing and suppliers' credit from abroad to finance
imports of inputs or auxiliary materials essential for their export
product. In summary, the various foreign exchange transactions
described above indicate in brief the type, nature and facets of the
current foreign exchange regulations that are now in force. The details, operational procedures and rules of the various
transaction and service payments, which are found in the multiple
directives issued at different times over the past fourteen years, are
compiled in this consolidated document of directives on foreign exchange
transactions. This bound document of compiled directives is made
available to banks for their knowledge and easy reference of the many
directives in their daily operations of the various types of foreign
exchange transactions and payments. The
compiled directives cover the numerous foreign exchange regulations issued
staring January 1977, as some of the rules and procedures stated in the
former exchange control regulation of 1977 are still active, and those
that are currently enforced and functional are all indicated in the
document. Moreover, the document is
distributed to budgetary bodies of the Federal Government, insurance
companies, Ethiopian and Addis Ababa Chamber of Commerce to enhance their
awareness of what the exchange regime is like and to augment their
knowledge of the various rules and procedures required to have access to
foreign exchange for effecting transactions and international payments for
multiple purposes and functions. The public awareness of the
directives issued on the foreign exchange regime of the country and the
provision of complete information on the foreign exchange operations and
transactions are expected to create a better understanding of the many
rules and procedures laid down for the various types of transactions,
imports, business and holiday travel, exports, hard currency conversions
into local currency, access to suppliers' credit and external loans,
encashment through the use of credit cards, foreign currency account
opening and maintaining of such accounts in domestic banks by
non-residents of Ethiopians and non-resident Ethiopian origin, etc. The provision of such specific
information on the current exchange regime of the country and knowledge of
what the related rules and procedures are, apart from enabling customers
to receive better banking services on all foreign exchange transactions,
will also help to bring better compliance with and enforcement of the many
foreign exchange regulations. Foreign
Exchange Directives 1977-2005
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