Recommendations for what ails the economy:
The road to stainable economic recovery and growth starts with a large (US$4-6 billion) non-debt foreign currency infusion to reboot the economy and anchor the liberalization of the exchange rate regime to a managed float after which market forces will balance supply and demand of foreign exchange.
2. The immediate effect of this measure will be the elimination of the currency black market and a redi rection/increase of official annual foreign exchange inflows by as much as US$10 billion+. This increased inflow will be US$3-4 billion from remittances, US$2-3 billion+ from illegal cross border exports of gold, Khat, live animals, etc., under-invoicing of imports and over-invoicing exports and US$4 billion+ fromi ncreased investment flows.
3. Is possible to secure the required US$4-6 billion and from where? The answer is yes, it is possible to ac quire such funding for the purpose of liberalizing the foreign exchange regime.
4. Build financial infrastructure – providing appropriate financial infrastructure will enable the optimal flow/allocation of domestic capital and pave the road for foreign portfolio investment (80%+ of global investment flows) into Ethiopia.
5. The pent-up demand for foreign exchange will be eliminated easing the upward pressure on the exchange rate
Putting it all together, there is the potential to increase Ethiopia’s annual foreign exchange inflows by as much as US$10 billion+
7. Inflation caused by exorbitant wholesale and retail profit margins will be replaced by competitive pricing given the elimination of product shortages.
8. Raw material shortages crippling all sectors of the economy will be diminished.
9. Significant capital flight caused by the closed currency regime will be reduced and funds formerly smug gled abroad may even be repatriated.
10. A major constraint to foreign investment (the inability to repatriate profits and import raw materials) will be diminished.
