Central Bank Grants Edible Oil Input Imports Top Priority in Forex Allocation

The central bank has changed the list of items imported to the country that are prioritized for foreign currency allocation from commercial banks. Inputs for edible oil production are included in the first tier alongside medicine, pharmaceutical manufacturing, and laboratory reagents. The National Bank of Ethiopia (NBE) issued a directive on December 1, 2021, tinkering with the list first developed in October last year.

The revised list officially reinstates petroleum products to top-priority status. The previous directive had downgraded fuel products to the second tier before the central bank issued a circular reversing the decision a few months later. Second priority items include inputs for agriculture (fertilizer, seeds, and pesticides) and manufacturing (raw materials and chemicals). The third priority category comprises 10 sectors, including education materials, manufacturing and agricultural machinery, and the repatriation of profits and dividends.

Commercial banks are mandated to allocate 15pc from half of their foreign currency reserves for all imports classified as priority essential goods. The decision put the previous threshold five percent higher. Items listed in the second and third priority categories get 40pc and 45pc, respectively, from half of the banks' foreign currency reserves.

“The inclusion of edible oil is in line with the need to stabilize the market,” Yenehasab Tadesse, director of foreign exchange monitoring and reserve management at the central bank.

Officials of the Trade Ministry had submitted a request before the central bank to secure 600 million dollars allocated to edible oil manufacturers. The Ethiopian Edible Oil Manufacturer Industries Association has been lobbying the central bank to include the industry in the top priority list of imported items. The Association submitted a letter of appeal to the central bank six months ago, pleading with the regulators to include inputs for edible oil manufacturing in the priority list.

As the production of oilseeds cannot keep up with manufacturing demand, the processing plants are forced to source crude oil from abroad, according to Addise Garkabo, general manager of the Association, which represents many of the 232 small and medium palm oil processing plants.

“The move would help stabilize the market and allow the plants to create more jobs as they kick up their production capacity,” he told Fortune.

The banking industry appears to welcome the news. The revised procedure requires importers of non-priority goods to deposit half the amount of the import value in blocked accounts. According to a senior executive at a private commercial bank, this can help filter out importers who submit proforma invoices to get ahead of the application queue.

Major difficulties noticed in the revised forex allocation rules are operational issues in the delay of forex approval and the need to control import prices, according to Yenehasab.

Commercial banks bought 42.7 million dollars in the last quarter of last year, a sharp fall by 53pc compared to the previous year's period, impacted mainly by the COVID-19 pandemic. They sold 17.3 million dollars over the same period, surging by 108.7pc.

"This has to do with the length of the queues," she said.

Officials at the central bank have changed the number of imported items and the approval process for requests to change products. Price adjustments above five percent of the import value were unacceptable in the previous regulation. However, the revised directive allows the president of a commercial bank to approve an adjustment considering the changes in the international market supported by data.

Making price adjustments justifiable due to fluctuations in the international market is reasonable, according to the executive of the private bank. "It would help address the complaints from importers," said the executive.

The revised directive will enable changes in the items listed in the proforma invoice when forex approval takes more than six months for non-priority and three months for priority sectors. These were requests denied. This was part of the problem, according to the bank executive. As demands in the domestic market shift while forex requests are processed, importers should be allowed to change the volume of goods they import without affecting the aggregate price, he said.

"It has no significant effect on the operations of banks," said the executive.

Banks operate under a strict forex allocation quota, and the central bank is supervising closely, said Yenehasab.



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