Annual Report on Exchange Arrangements and Exchange Restrictions 2005
Chapter

ETHIOPIA

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
September 2005
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(Position as of December 31, 2004)

Status Under IMF Articles of Agreement
Article XIVYes.
Exchange Arrangement
CurrencyThe currency of Ethiopia is the Ethiopian birr.
Exchange rate structureUnitary.
Classification
Managed floating with no predetermined path for the exchange rateThe official exchange rate of the birr against the dollar is determined in the interbank foreign exchange market as the weighted average exchange rate prevailing on the preceding day.
Foreign exchange bureaus are allowed to engage in all approved spot and cash current transactions.
Exchange taxAuthorized banks must observe a prescribed commission of 1.5% on sales of foreign exchange, which accrues to the National Bank of Ethiopia (NBE).
Exchange subsidyNo.
Forward exchange marketNo.
Arrangements for Payments and Receipts
Prescription of currency requirements
Controls on the use of domestic currency
For current transactions and paymentsYes.
For capital transactions
Transactions in capital and money market instrumentsYes.
Transactions in derivatives and other instrumentsYes.
Credit operationsYes.
Use of foreign exchange among residentsResidents are not allowed to use foreign currencies among themselves.
Payments arrangements
Regional arrangementsEthiopia is a member of COMESA.
Clearing agreementsPayments may be made within the framework of COMESA.
Administration of controlEffective March 19, 2004, commercial banks have the responsibility for determining compliance of buyers and sellers of foreign exchange with import- and export-licensing requirements and foreign exchange regulations.
International security restrictionsn.a.
Payments arrearsNo.
Controls on trade in gold (coins and/or bullion)Import and export exchange licenses are required by the NBE.
Controls on domestic ownership and/or tradeThe ownership of personal jewelry is permitted. However, unless authorized by the Ministry of Mines and Energy, the possession or custody of 50 ounces or more of raw or refined gold or platinum, or gold or platinum in the form of nuggets, ore, or bullion, is not permitted. Private companies may directly export newly worked gold, silver, and jewelry.
Controls on external tradeLicenses to import or export gold in any form are issued by the NBE.
Controls on exports and imports of banknotes
On exports
Domestic currencyTravelers may take out up to Br 100 in Ethiopian banknotes.
Foreign currencyExcept for short-term visitors, travelers must have an authorization to reexport foreign exchange. Reconversion of birr to foreign exchange of up to the equivalent of $150 may be made without the presentation of any documentary evidence; for amounts exceeding $150, the presentation of authenticated documentary evidence is required, indicating that the equivalent amount of foreign exchange was lawfully converted into local currency.
On imports
Domestic currencyTravelers may bring in up to Br 100 in domestic currency.
Resident Accounts
Foreign exchange accounts permittedCommercial banks may open foreign exchange retention accounts for eligible exporters of goods and recipients of inward remittances without prior approval from the NBE.
Held domesticallyExporters of services may open foreign exchange retention accounts with the NBE’s approval.
Held abroadNo.
Accounts in domestic currency held abroadNo.
Accounts in domestic currency convertible into foreign currencyNo.
Nonresident Accounts
Foreign exchange accounts permittedThree types of nonresident accounts may be opened: foreign currency accounts, nonresident transferable birr accounts, and nonresident nontransferable birr accounts. Deposits to these accounts must be made in foreign currency. The balances in the first two accounts may be transferred freely abroad or used for international payment purposes, while the balance in the nonresident nontransferable birr account is to be used mainly for local expenses. Transfer of funds from foreign currency accounts and nonresident transferable birr accounts to nonresident nontransferable birr accounts do not require NBE approval.
Diplomatic bodies, members of international organizations, and foreign investors may open all three types of foreign exchange accounts. Other nonresidents may open only nonresident nontransferable birr accounts. All nonresident accounts must be in the form of demand deposits and may be interest bearing. Effective May 13, 2004, the NBE granted permission for nonresident Ethiopians and nonresident foreign nationals of Ethiopian origin to open both current account and fixed deposit accounts in foreign currency. Foreign currency current accounts are subject to a minimum equivalent of $100 and maximum of $5,000. Foreign currency fixed accounts are subject to a minimum of $1,000, but no maximum. Effective May 13, 2004, foreign currency accounts are restricted to the following currencies: U.S. dollar, pound sterling, euro, and Japanese yen. Effective May 13, 2004, foreign currency accounts may be used to effect payments and transfers abroad, provided the account holder has a business license to do so.
Domestic currency accountsYes.
Convertible into foreign currencyYes.
Approval requiredApproval is required for the conversion of the balances in nonresident nontransferable birr accounts into foreign currency accounts.
Blocked accountsNo.
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for importsImportation under suppliers’ credits requires prior approval of the terms and conditions of the credit, and such imports are allowed only for individuals or enterprises engaged in export activities and/or who generate foreign exchange.
Documentation requirements for release of foreign exchange for importsFinal invoices that separately show f.o.b. cost and freight charges and nonnegotiable bills of lading are required.
Domiciliation requirementsImporters are required to insure their goods with local insurance companies.
Preshipment inspectionYes.
Import licenses used as exchange licensesYes.
OtherExchange licenses may be obtained when a valid importer’s license is presented. Applications for exchange licenses must be accompanied by information on costs and payment terms and evidence that adequate insurance has been arranged with an Ethiopian insurance company.
Import licenses and other nontariff measuresImports by federal and regional offices are exempted from the import-licensing requirement.
Negative listThe list includes items restricted for reasons of health and security.
Open general licensesImports by federal and regional offices are exempted from this requirement.
Import taxes and/or tariffsThe item-weighted average tariff rate is 17.5%. Imports are subject to a 2% withholding tax.
State import monopolyNo.
Exports and Export Proceeds
Repatriation requirements
Surrender requirementsExporters may retain 10% of their export proceeds in foreign exchange for an indefinite period. The remaining balance may be retained for a period of up to 28 days, after which it must be converted into local currency at the weighted average daily interbank exchange rate.
Financing requirementsNo.
Documentation requirementsAll exporters must prove to the NBE that they have repatriated 100% of previous export earnings before being allowed to export again.
GuaranteesAn export credit guarantee scheme is operational.
Export licenses
Without quotasAll exports are processed by commercial banks, with the exception of coffee exports.
Export taxesNo.
Payments for Invisible Transactions and Current Transfers
Controls on these transfers
Trade-related payments
Prior approvalApproval is given by the commercial banks.
Indicative limits/bona fide testVerification of documentary evidence is required for unloading, storage, commission, and administrative expenses.
Investment-related payments
Prior approvalAfter paying local taxes, foreign companies may remit dividends on their invested and reinvested capital in any currency. Prior approval for amortization of loans or depreciation of direct investments is required mainly for government transactions made through the Ministry of Finance and Economic Development.
Indicative limits/bona fide testThese are subject to an assessment based on the NBE’s criteria. Verification of a contractual agreement between parties is required by the NBE.
Payments for travel
Quantitative limitsEffective March 30, 2004, the limit on purchases of foreign currency–denominated checks for travel abroad was eliminated. Previously, the limit was $1,200 for holiday travelers. However, a limit on cash of up to $400 or its equivalent applies for traveling abroad on holiday or business. For government travel, the allowance amounts vary by the country of destination and foreign currency required, based on the cost of living.
Indicative limits/bona fide testYes.
Personal payments
Prior approvalYes.
Quantitative limitsThere are no limits on allowances for medical treatment and studies abroad. A foreign exchange bureau may sell foreign exchange for a bona fide medical treatment abroad upon presentation of a medical board certificate, a passport, a valid exit visa, and an air transportation ticket. A foreign exchange bureau may sell up to $400 or its equivalent in cash and the balance in traveler’s checks or drafts. Additional foreign exchange may be approved for a patient being treated abroad, provided that the application is supported by bona fide medical bills or hospital statements.
A foreign exchange bureau may sell foreign exchange for a bona fide tuition fee, subsistence, and other associated educational expenses upon presentation of a letter of admission and evidence of a student’s attendance at an institution. Sales of foreign exchange to a student may be approved, up to $400 or its equivalent in cash or traveler’s checks. The tuition fee, subsistence, and other associated educational expenses must be paid directly through bank transfer or draft to the educational institution.
Indicative limits/bona fide testVerification by a medical board and the Ministry of Health is required for medical payments.
Foreign workers’ wages
Prior approvalYes.
Quantitative limitsThere are no limits on allowances for medical treatment and studies abroad. A foreign exchange bureau may sell foreign exchange for a bona fide medical treatment abroad upon presentation of a medical board certificate, a passport, a valid exit visa, and an air transportation ticket. A foreign exchange bureau may sell up to $400 or its equivalent in cash and the balance in traveler’s checks or drafts. Additional foreign exchange may be approved for a patient being treated abroad, provided that the application is supported by bona fide medical bills or hospital statements.
Foreign employees of embassies, legations, consulates, and international organizations whose salaries are fully paid in foreign currency from sources outside Ethiopia may take out and/or transfer their net earnings, not exceeding the balance in their nonresident foreign currency account, nonresident transferable birr account, and/or nonresident nontransferable birr account.
Other payments
Prior approvalYes.
Indicative limits/bona fide testDocumentation is required from the overseas institute and approval must be given by commercial banks for subscription and membership fees. NBE verification of contractual agreements between the parties is required for the transfer of legal fees, and applications are considered on a case-by-case basis.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsYes.
Surrender requirementsTen percent of proceeds may be retained indefinitely. The remaining balance may be retained for a period of no more than 28 days.
Restrictions on use of fundsThese funds may be used for payments such as imports of goods and services, export promotion, training and education, credit repayment, and other payments approved by the NBE.
Capital Transactions
Controls on capital transactionsYes.
Controls on capital and money market instruments
On capital market securities
Shares or other securities of a participating nature
Purchase locally by nonresidentsNonresidents are not permitted to purchase government bonds.
Sale or issue locally by nonresidentsYes.
Purchase abroad by residentsYes.
Sale or issue abroad by residentsYes.
On money market instrumentsThe regulations governing shares or other securities of a participating nature apply.
On collective investment securitiesThere is no domestic market for these instruments.
Controls on derivatives and other instruments
Controls on credit operations
Commercial credits
By residents to nonresidentsYes.
To residents from nonresidentsYes.
Financial credits
By residents to nonresidentsYes.
To residents from nonresidentsBanks need prior approval from the NBE to borrow funds abroad, but do not need prior approval for overdrawing their accounts with foreign correspondents or accepting deposits. Other residents need to obtain the NBE’s prior approval, and the credits should be used for export-generating investments.
Guarantees, sureties, and financial backup facilities
By residents to nonresidentsYes.
To residents from nonresidentsCommercial banks may issue guarantees on behalf of foreign banks to resident companies.
Controls on direct investment
Outward direct investmentYes.
Inward direct investmentInvestment in telecommunications and defense industries is allowed in partnership with the government. Investments in postal service (except courier service), the transmission and supply of electricity through the Integrated National Grid System, and air transport services using aircraft with a seating capacity of more than 20 passengers are reserved for the government. All investments (except for services and transport generation and supply of electricity) must be approved and certified by the Ethiopian Investment Commission (EIC). The Ethiopian Civil Aviation Authority and the Ethiopian Electric Agency are in charge of issuance, renewal, and cancellation of services investment permits for air transport, and transmission and supply of electricity, respectively.
Exemptions from income taxes are granted for up to six years for new projects in manufacturing or agro-industry in which at least 50% of production is exported or at least 75% of production is used as an input for the production of export items. Expansion or upgrading of existing projects is also eligible for exemptions from income taxes for two years if the expansion or upgrading increases the existing production by 25% in value and 50% of the production is to be exported. Investment activities that export less than 50% of their production and produce exclusively for the local market are granted up to three years of income tax exemption. Imports of investment goods and spare parts for such ventures are also eligible for exemption from customs duties and other specified import levies. The EIC may decide on additional or new incentives when it deems this necessary.
Controls on liquidation of direct investmentEIC authorization is required for repatriation of capital. Registration of capital inflows with the EIA establishes the evidence of inflows required for authorization. All recognized and registered foreign investments may be terminated on presentation of documents regarding liquidation and on payment of all taxes and other liabilities. Subject to appropriate documentation, foreign investors may transfer their capital without limitation upon final departure from Ethiopia. All foreign investors may also transfer abroad in convertible currency payments for debts, fees, or royalties in respect to technology transfer agreements.
Controls on real estate transactions
Purchase abroad by residentsThe purchase of personal property abroad is not permitted.
Purchase locally by nonresidentsAll ownership rights to land are vested in the state; private ownership is not allowed. Land user rights may be acquired through certificates or lease arrangements. Foreign investors are not allowed to own land but may obtain access to land through lease arrangements with the government.
Sale locally by nonresidentsYes.
Controls on personal capital transactions
Loans
To residents from nonresidentsRegulations on financial credits apply.
Gifts, endowments, inheritances, and legacies
By residents to nonresidentsYes.
To residents from nonresidentsYes.
Transfer of assets
Transfer into the country by immigrantsYes.
Transfer of gambling and prize earningsThese transactions are not allowed.
Provisions specific to commercial banks and other credit institutions
Borrowing abroadBanks may not borrow from, or enter into a guarantee agreement with, banks abroad unless authorized by the NBE.
Maintenance of accounts abroadBanks may maintain nostro accounts with their correspondents. Ethiopian airlines and shipping lines are also allowed to maintain accounts abroad.
Open foreign exchange position limitsThe overall foreign currency position of each bank should not exceed 15% of its capital at the close of business on each Friday. Effective June 1, 2004, commercial banks’ holdings of foreign currency notes are limited to 5% of paid-up capital.
Provisions specific to institutional investorsResidents are not allowed to invest in foreign securities.
Limits (max.) on securities issued by nonresidentsYes.
Limits (max.) on investment portfolio held abroadYes.
Other controls imposed by securities lawsn.a.
Changes During 2004
Arrangements for payments and receiptsMarch 19. The NBE transferred to commercial banks the responsibility for determining compliance of buyers and sellers of foreign exchange regulations.
Nonresident accountsMay 13. Foreign currency accounts were restricted to the following currencies: U.S. dollar, pound sterling, euro, and Japanese yen.
May 13. The NBE granted permission for nonresident Ethiopians and nonresident foreign nationals of Ethiopian origin to open both current and fixed deposit accounts in foreign currency. Current foreign currency accounts were subject to a minimum of $100 or its equivalent and a maximum of $5,000. Fixed foreign currency accounts were subject to a minimum of $1,000, with no maximum.
May 13. Foreign currency account holders were permitted to make transfers and payments abroad, provided the account holders have a business license to do so.
Payments for invisible transactions and current transfersMarch 30. The limit on purchases of foreign currency–denominated checks for travel abroad was eliminated.
Capital transactions
Provisions specific to commercial banks and other credit institutionsJune 1. Commercial banks’ holdings of foreign currency notes were made subject to a limit of 5% of paid-up capital.

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