Ethiopia's 'historic' exchange rate policy results in constant price fluctuations for every purchase.

Aug. 12, 2024, 3:15 p.m.

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The prices on the menu have been wiped clean at a small hotel in a suburb of Ethiopia’s capital.

This was not a mistake, the waiters explained, as businesses in Addis Ababa struggle to keep up with spiraling inflation since the government implemented a flexible exchange rate policy late last month.

Since that time, the Ethiopian birr has depreciated by 60% against the US dollar as of Monday, leading to concern as consumers are forced to pay more for essential goods and some business owners are engaging in stockpiling.

Advertisement The menus at the Samra Hotel in Bole, a verdant suburb of Addis Ababa, reflected the volatile situation: Prices for every meal were changing constantly.

“Previously, prices were adjusted every two months, but now they are updated daily, if not hourly, to reflect the dynamic nature of the market,” said Rahel Teshome, who works at the hotel.

Numerous supermarkets in Addis Ababa are withholding goods in warehouses and only selling limited quantities in their stores to avoid penalties from city authorities, who have pledged to take action against those stockpiling. Consumers wishing to purchase in bulk are required to pay inflated prices for goods they are directed to collect from warehouses.

In Merkato, the capital’s largest open-air market, security guards are stationed in an attempt to prevent businesses from increasing prices. Last week, police officers raided several warehouses and seized 800,000 liters (210,000 gallons) of cooking oil, which they subsequently distributed to local cooperatives, who offered it at the previous price. Over 3,000 stores accused of stockpiling have been closed across the country.

The Addis Ababa City Trade Bureau has warned that additional measures will be taken against individuals who exploit the floating of the birr to inflate prices.

This new currency exchange policy was a groundbreaking change in a nation where the government had controlled the price of foreign money for years, leading to a thriving black market. Now, commercial banks can set their own exchange rates, and for the first time, non-bank businesses are allowed to run currency exchange offices.

Advertisement The International Monetary Fund has approved a four-year loan worth $3.4 billion, coinciding with Ethiopia's economic reforms. The IMF has pledged to release $1 billion immediately to address urgent needs. Managing Director Kristalina Georgieva praised these reforms, calling them a “landmark moment for Ethiopia.”

Ethiopia, which faced foreign currency shortages in the period before the reforms, relies on imports for many essential goods. To help people adjust to the new policy, authorities have imported 14 million liters (3.7 million gallons) of edible oil. However, these efforts have been small compared to the rising prices of other vital goods.

Experts predict uncertain times ahead for Ethiopians in a country where official salaries have remained largely unchanged for years.

Advertisement Those with fixed incomes will be most affected by the fluctuating value of the birr, according to Getachew T. Alemu, a public policy expert in Addis Ababa. He believes that the immediate injection of IMF funds won't be sufficient to alleviate the pressure.

“The situation could worsen, particularly for those with fixed incomes, unless careful policy measures are implemented,” he warned.

While the government is taking action against those manipulating prices, it appears to be contradicting its own advice. Recently, authorities increased the cost of standard passports from 2,000 to 5,000 birr, surprising people like Almaz Teferi, who had already begun the process of obtaining one.

She and several of her acquaintances hope to find work as domestic helpers in one of the Gulf countries.

Advertisement “I have been working as a cleaner to earn the money for the passport. I went to confirm the fee on Monday and by Thursday it had risen substantially,” Teferi said.