Country devalues currency in competitiveness bid

pulse

October 10, 2017 5:47 PM

Ethiopia will devalue its currency by 15 percent in a bid to boost demand for its major exports, a state-run media outlet reported Tuesday.

Africa's second most-populous country is also one of its best economic performers, with the International Monetary Fund (IMF) estimating in September that the economy had grown by 9 percent since 2016.

Fana Broadcasting Corporate reported the devaluation of the birr currency will take effect on Wednesday and is intended to boost demand for the country's flagging exports, including coffee, leather and gold.

Income from Ethiopia's top products has dropped in recent years because of low global commodities prices, contributing to a shortage of foreign exchange that has hampered the economy.

John Ashbourne, researcher at London-based Capital Economics, said the devaluation will increase costs of vital imports like fuel and machinery, but will give agricultural exports such as coffee and cut flowers an edge over East African competitors.

"In theory, it should boost the competitiveness of their exports, particularly compared to the Kenyan ones," Ashbourne told AFP.

One of Africa's poorest countries, agriculture makes up 85 percent of employment in Ethiopia, though the government is attempting to build up a manufacturing sector to transform the economy.

It has promoted Ethiopia's low cost of doing business despite concerns over the country's long-term stability after a wave of anti-government protests that ended last year.

The devalued currency may convince investors to give Ethiopia a second look, Ashbourne said.

"If you were thinking of setting up your shoe factory, or whatever it is, Ethiopia's advantage is that it's a low-cost destination. It's just become a lower cost destination," he said.

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