- East Africa
- Trade - Finance
Ethiopia: Price hikes hit transport and construction sectors after birr devaluation
The 16.7 percent devaluation of the Ethiopian currency, the birr, announced last week, against major foreign currencies has seen price inflation rising into the double-digits on both imported and locally manufactured goods.
In the wake of the devaluation prices of main construction materials have skyrocketed with steel, cement and paints showing a minimum 20 percent price increase.
Quartz, a preferred external paint for the booming construction sector, was sold for 335 birr a gallon before the devaluation. But the devaluation, effective beginning September 1, has forced producers and importers of such materials to make price adjustments.
This week, a gallon of quartz paint reached 415 birr, whilst a popular water-based paint that had been sold at 90 birr per gallon went up to 110 birr, both exhibiting a 20 percent increment.
The flag carrier, Ethiopian Airlines has also made a price adjustment in all its local and international destinations following the devaluation.
National Bank of Ethiopia’s (NBE) latest directive that saw importers left with almost no choice but to pay in dollars for the freight shipped by Ethiopian Shipping Lines (ESL) has also been pointed as another factor for the sharp price increment.
“Though ESL’s freight fee was somehow tolerable, the recent devaluation of the birr has made it a heavy burden for us,” a manager working for an import company said.
Importers and manufacturers who set their own profit margins for their goods would see that margin erased by the unexpected devaluation, the manager said while arguing why there is the need for an immediate price adjustment.
Nonetheless, some market players are taking advantage of the situation.
Before the devaluation, Mugher Cement Factory’s Ordinary Pozzolana Cement (OPC), a cement type utilized for heavy construction, and Portland Pozzolana Cement (PPC), another cement type, were sold at 405 and 340 birr respectively.
However the prices for OPC and PPC have now been increased to 420 birr and 375 birr respectively without any official price increment announcement made by the producer.
The Inspection Directorate of the Ministry of Trade and Industry (MoTI) has been charged with undertaking a market assessment. But according to Amakele Yilma, Corporate Communications Directorate of the ministry, it is too early to know the full datails of the inspection.
Following the National Bank of Ethiopia’s announcement of the nearly 17 percent devaluation of the birr against main foreign currencies, the central bank argued that the depreciation will raise the country’s foreign trade competitiveness in the global market, boost up local industries and encourage import substitution.
According to the national bank the targeted goals of the depreciation obtained the International Monetary Fund’s (IMFs) appreciation, especially on the latest monetary measure.
The IMF has indicated that the devaluation can stimulate economic growth and reduce current account deficits as they may boost exports and discourage imports, albeit carrying the risk of importing inflation.
And although the IMF believes the devaluation would spur growth, it has suggested that only a maximum of 10 percent devaluation is appropriate for Ethiopia.