Is it gov’t or economy’s conundrum, as Haile boasts of bouncy economy, high reserves & remittances black market should be so attractive?

7 May

by Melkam Aschalew* – Posted by The Ethiopia Observatory

Mulunesh Gizaw, 64, was the 14th person in a line of 21 in front of a teller’s window at the Lideta branch of the Commercial Bank of Ethiopia (CBE) when Fortune found her at ten in the morning on April 30, 2013. It would be an exasperating one-hour wait before it was her turn.

“It would have been better if I had gone to the black market,” she told the teller.

“If you are found dealing with the black market, you will be prosecuted,” he answered her.

“If you say so; your service should be quicker,” she said.

Mulunesh has a daughter who sends her money from theUnited States. She had to sell 200sqm of land in Debre Markos to raise the 30,000 Br she needed to send her daughter, Itayenesh Mulye, who was one of the winners in the American DV lottery, to the US.

For the last seven months Mulunesh’s daughter has been sending her dollars which are converted to Birr by the bank and given to Mulunesh. For the first four months she received 1,000Br. On the fifth and sixth month, she got 1,500Br.Now, for this month, the seventh transaction, her daughter has sent her a total of 5,600 Br because of the holiday.

This makes up a growing amount of foreign currency coming into the country, although it is smaller than other African nations. According to World Bank (WB) estimates, Ethiopia had 387 million dollars in remittances, which accounted for 1.2pc of the nominal GDP. That is far lower than Kenya’s 5.4pc, Uganda’s 4.5pc and Sudan’s 4.8pc. Most of the remittance recipients inEthiopiaare individuals, such as Mulunesh, living in urban areas; aged between 25 and 34 years old, and 65pc are women.

The last few days before Easter are busy at most banks, crowded by people that visit the branches to send or receive money.

“It is difficult to determine the average number of customers per day, but I estimate 300 customers use my window,” said the teller. Except for some Banks such asAbyssinia, Debub Global and Enat, which Fortune visited last week, most others were busy handling remittances, with CBE and Dashen, more crowded than the rest.

CBE, which has 675 branches in the country, has partnerships with 25 money transfer companies, followed by Awash International Bank (AIB) with nine. Enat Bank, a new entrant into the sector, is currently handling remittances through the swift service, but it is in talks with five companies, two of which have expressed interest to work with it, Lealem Getachew, Director of International Banking Department.

Among the money transfer service providers, Western Union and MoneyGram lead the pack, controlling more than 75 pc of the business coming toEthiopia, according Tsehay Shiferaw, president of Awash Bank.

It is not the number of money transfer companies a bank deals with that matters, says Tsehay. .

“There are some companies that are established by a few people that live abroad and that are not operating,” he said.

Damtew Negash has received money from seven countries through the swift service andWestern Union, MoneyGram, and Xpress Money for a ceremony in Shashemene town 240Km from Addis Abeba. He collected the money from the Sidist Kilo branch of the CBE, but is not happy with the time it takes. He was not happy with “the bureaucracy and expensiveness” of the service.

“I am sure if someone sends me money from abroad, I will not come again to the Bank with this chaotic environment,” he said.

A great bulk of money transfer, according to a 2011 study by Alemayew Geda (Prof), a lecturer atAddisAbebaUniversity, actually happens through informal channels, mainly because of lower costs and lack of awareness of the formal money transfer options.

“It is not a small amount of money that the country is losing to the black market,” says Yisaq Mengesha, Business Development Department head at CBE.

Players normally include those with the infrastructure for the service, including postal and telecom service providers, credit unions and microfinance institutions, but these, according to Alemayehu only have a limited presence.

The World Bank estimated that 14pc of people to whom money was transferred from abroad in 2010 got it through people travelling to the country.

One black market money exchange operator near Ethiopia Hotel said that he used American dollars sent to him by a brother in South Sudan, which he currently exchanged at 22 birr for one dollar; the current black market rate.

“Please do not ask me additional questions, you are beginning to scare me,” he said, as he talked to this reporter.

CBE is trying to improve its money transfer service by assigning more tellers, according to Yisaq. But for Lemma Teshome, lecturer atAddisAbebaUniversity, it is neither increasing the number of money transfer companies the banks are dealing with nor the tellers that helps, but having a good policy.

“Since people need foreign currency to have international trade, they will use any means to gain access to foreign currency,” Lema says. “The black market is the core means they use.”

The rate of remittance to the country, Lema says, depends on size of the immigrant population, rate of inflation in the recipient country, facility for remittance service and level of economic activity in migrant receiving countries.

He believes most of the remittance coming to Ethiopia uses the illegal route, with serious negative impact on the country’s economy.

*Fortune Staff Writer:
Black Hole:Remittances continue rise but people still turn to black market

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