Ethiopia Finance Launches New Forex Directive

In recent years, Ethiopia faced challenges including soaring inflation and a severe foreign exchange shortage, largely driven by unsustainable government borrowing from the National Bank of Ethiopia (NBE). This led the country to exchange rate misalignments and a growing parallel market.  To address these issues, the Government of Ethiopia has introduced a new and comprehensive foreign exchange directive—Forex Directive FXD/01/2024. This reform introduces a competitive and market-based exchange rate system and covers regulations on foreign exchange rates, external loans, foreign currency accounts, and retention policies.

Retention Accounts for Exporters: The directive removes the mandate for eligible exporters to surrender 50% of their foreign exchange earnings to the NBE. Exporters are now required to sell their retained earnings to the transacting bank within 30 calendar days. This measure, though temporary, aims to support the growth of an interbank foreign exchange market.

• Repatriation of Capital: In a bid to attract foreign direct investment, the new forex directive clearly outlines procedures for foreign investors to repatriate their capital and earnings with ease, making Ethiopia a more attractive destination for investors.
• Foreign Exchange Bureaus: The NBE has also begun licensing independent non-bank entities to operate as foreign exchange bureaus, enhancing market access for foreign exchange transactions.
• Special Economic Zones: Businesses operating within Special Economic Zones (SEZs) are granted privileges under the new directive, including the right to retain 100% of their foreign exchange earnings. This is intended to improve international competitiveness and streamline operations.

Foreign Currency Accounts: For Foreign Entities, the directive allows foreign companies, embassies, and international organizations to maintain foreign currency accounts. It also permits foreign nationals employed by these organizations to use their accounts without being required to surrender any portion of their foreign currency collections. Additionally, restrictions that previously limited foreign entity account holders to a single bank have been lifted, allowing multiple accounts across banks.  Ethiopians, both resident and non-resident, can now use foreign currency accounts for transfers received via International Remittance Service Providers, as well as funds from salaries, rentals, or other sources.

These reforms demonstrate Ethiopia’s dedication to modernizing its foreign exchange policy, stabilizing the market, and promoting economic growth. Crucially for U.S. (other foreign businesses), they foster a more favorable business environment by reducing bureaucratic obstacles, allowing companies to repatriate profits, dividends, and capital more easily. The goal is to ensure that foreign businesses can secure the currency required for their operations and move capital in and out of the country with greater ease.

Ethiopia’s Forex Directive FXD/01/2024 modernizes foreign exchange policies, easing capital repatriation and eliminating mandatory currency surrender for exporters. These reforms aim to attract foreign investment and boost economic growth.

For more details, please contact: Yemesrach Kassu at Yemesrach.Kassu@trade.gov