Analysis: As rising prices, inflation grip Ethiopia, government to open up retail sector to foreign companies

Addis Abeba – In a major policy change, State Minister of Finance Dr. Eyob Tekalign (PhD), said that like the telecom sector, the government will open up retail sector to foreign companies.

His announcement came as inflation is causing price hikes in multiple sectors of the retail market in Ethiopia. Although inflation has decreased to 33.60 % in the month of February, down from 34.50 % in January this year, the prices of basic commodities continued to go through the roof, creating shock waves among consumers.

The government needs to consider alternative ways to increase citizens’ income by creating general economic growth, Dr. Eyob said. In the meantime, he expects the government to come up with a different solutions to control rising inflation.

According to the State Minister, the price of commodities in the world market is rising sharply. One of the main reasons for the current inflation is that the price of imported goods fell directly on consumers. The monetary policy that the government is using to cover its expenses is also creating pressure of its own, he said, adding that if the government can’t fix these over time, things will get worse.

“There is no one within the government that says the reform we have started in foreign exchange sector is not harmful”

Dr. Eyob Tekalign

The state minister expressed hope that because the government has chosen peace, the domestic security situation is expected to improve soon, and that will in return stabilize the market.

However, he pointed out that because the country’s retail market system is controlled by a few, it has made the government to rethink about bringing rapid reforms.Just like the telecom sector was opened to foreign competition so will Ethiopia’s retail market system. Beyond these factors, however, the constant expansion of the exchange rate between the dollar and Birr has contributed significantly to the running inflation, he said.

“There is no one within the government that says the reform we have started in foreign exchange sector is not harmful,” Dr. Eyob said, but the government needs to overcome the impact. There are also implications of the delay in the reform itself, but “we will implement that quickly and work to solve the problems.”

Although reforms have made a big difference, especially in the export sector, when challenges pile up, delaying some reforms will be seen as a solution, he said.

Rising prices and cooking oil fiasco

According to the State Minister, the doubling of prices in some products in the international market, such as steel, edible oil, and fuel, as well as the security situation in Ethiopia has caused major supply disruption and the current inflation.

But he also blamed traders who don’t consider profits as adequate unless they make a whooping profit margin of 200 per cent. He said when the retail market system is open to competition, it will make these traders “to come back to their senses.”

The latest sharp increase in commodities is the price of cooking oil. This week, the sudden increase has sent officials scrambling for answers. The price for a pack of five liters edible oil soared to ETB1000 at retail stores this week up from ETB600 last week. Addis Abeba city Mayor Adanech Abiebie issued a statement on Monday 07 March warning traders refraining from hoarding and unreasonable increases in prices.

It was on 01 December 2021 that the Central Bank of Ethiopia issued new directive in which it had changed priority list of items for import in order for commercial banks to provide foreign currency allocation. Inputs for edible oil production was among the prioritized lists in order to stabilize the market.

However, according to Addis Fortune weekly business newspaper, the government has failed to allocate foreign currency to palm oil importers. Citing a survey conducted by the Ethiopian Edible Oil Manufacturer Industries’ Association the newspaper reported “the industry is gripped by challenges in shortages of agricultural inputs and associated price surges.”

Similarly, in a recent interview with Wazema Radio, State Minister for Trade and Regional Co-operation, Hassan Mohammed, said that out of the seven large oil refineries in Ethiopia, only five were currently supplying their oil products to consumers.

Citing data obtained from the Ministry, Wazema reported that the number of businesses that obtained licenses to distribute edible oil were far more greater and are more accessible than businesses registered with the Ministry to produce edible oil locally. This has led investors to resort to importing edible oil instead of producing it locally.

But foreign currency shortage is not the only factor for the cooking oil shortage and subsequent price hike. A joint Ethiopia Oilseeds 2020 Annual report by United States Department of Agriculture and Global Agricultural Information Network, which was published in March 2021, said that “sesame seed production in MY 2020/21(October-September) was projected at 255,000 metric tons (MT), down by 25,000 MT over the previous year’s estimate.” The report said this was “attributed to reduction in acreage.”

“Total area for sesame production is estimated at 520,000 hectares (HA),down by 13 percent compared to the prior year. The contraction in sesame acreages is driven by shifts in production of alternative food crops, namely sorghum.”

Beyond the export market, however, increased oilseeds production was expected to meet the growing demand for cooking oil and livestock feed through implementations of Integrated Agro-Industrial Parks

Further complicating the domestic production is the war in Tigray and tensions along the Sudanese border during the harvest season, which affected logistics and supply. “Looking forward, sesame seed production in MY 2021/22 will likely trend downward due to persistent conflict and border tension near major growing areas. Farmers may also cut sesame seed planting for next year’s crop and continue transitioning to alternative crops including sorghum, mung beans, soybeans, and sunflower seeds.”

Before the war broke out in November 2020, western Tigray’s sesame farms produced a third of Ethiopia’s total exports. Since the war, however, western Tigray is under Amhara state administration along with Eritrean security forces. Data on sesame cultivation of the year 2021 are hard to come by.

Beyond the export market, however, increased oilseeds production was expected to meet the growing demand for cooking oil and livestock feed through implementations of Integrated Agro-Industrial Parks, such as the Bure Integrated Agro-Industrial Park in Amhara Regional State, which was inaugurated in February last year.

Meanwhile, in what appears to be a massive scale crackdown on hoarders, Addis Abeba city government and regional state governments are announcing the seizure of millions of liters of cooking oil in the last two days

“Furthermore, several other edible oil complexes are expected to commence productions by end of this year. This expansion in agro-industries and edible oil processing is projected to strengthen oilseeds production in the longer term, but as current production of oilseeds is not sufficient, imports are expected in the short term,” the joint Ethiopia Oilseeds 2020 Annual report said.

According to Fortune Newspaper, “Phibela, Worku Aytenew (W.A.), Shemu, Harmessa and Al-Impex are the five industrial-scale oil plants that receive the federal government’s allocation” foreign currency. “The most aggravating issue remains the unavailability of foreign currency needed to buy crude palm oil and replace machinery,” the paper reported.

Meanwhile, in what appears to be a massive scale crackdown on hoarders, Addis Abeba city government and regional state governments are announcing the seizure of millions of liters of cooking oil in the last two days. This follows the announcement on Monday by Mayor Adanech that the city administration was setting up a task force to monitor illegal trade practices including hoarding. AS