1. Introduction
Within the country's
broad strategy of bringing a sustainable economic growth and reducing the
widespread poverty, the National Bank of Ethiopia has been undertaking
various financial and external sector reform measures. The interest
rate and exchange rate reforms, the current account liberalization
measures, and the opening-up of the banking and insurance industries to
Ethiopian nationals are among those in the list of measures.
Although there is still room for improvement, these measures have enabled
the country to stabilize domestic prices and the exchange rate of the
Birr, and bring the reserve position of the country to a higher level.
Continuing the
reform, in an effort to create a sustainable source of foreign exchange
and further increase the country's foreign exchange reserve position, the
National Bank of Ethiopia has recently allowed, non-resident (NR)
Ethiopians and non-resident (NR) foreign nationals of Ethiopian origin who
are holder of a valid identification card obtained pursuant to
proclamation 270/94, to open foreign currency accounts in the domestic
banks. The measure is also believed to enhance the participation of
the Ethiopian Diaspora in their country's growth and poverty reduction
efforts.
The following
sections outlines the gist of the study and the main points in the NR
foreign currency account Directive which entered into force on May 13,
2004.
2. The Significance of Allowing a Non-resident Foreign
Currency Account to the Ethiopian Diaspora for the Ethiopian Economy
A study recently
done by the National Bank of Ethiopia on the experiences of other
countries and the lessons to be drawn to Ethiopia reveals that allowing on
NR foreign currency account have the following major benefits:
· Ease the
country's Balance of Payments problem and become a sustainable source of
foreign exchange;
· Encourage foreign direct investment;
· Contribute to exchange rate and price stability via increase
inflow of foreign exchange; and
· Encouraging the flow of managerial and technical know-hows.
It is revealed that
despite the existence of a large number of Ethiopians in the Diaspora and
the huge potential that they have in boosting domestic investment
activities, the country has not benefited much. Absence of financial
investment opportunities that could ease the transfer of funds to the
country of origin was found to be one of the hurdles. Experiences of
countries tell us that many developing countries have been able to exploit
the potential of the Diaspora by allowing them to open an NR foreign
currency account in domestic banks.
3. Basic Features of the Directive
3.1
Eligibility Criteria
The following
individual and/or enterprise may open NR – account
a)
Non-Resident Ethiopians who are holder of valid Ethiopian passport
together with properly filled and signed application form.
b) Non-Resident foreign nationals of Ethiopian origin who is
holder of a valid identification card, obtained pursuant to proclamation
270/94 and properly filled and signed application form.
c) Business
enterprise located outside Ethiopia and owned by NR Ethiopians and/or
foreign nationals of Ethiopian origin which present certificate of
ownership entitlement for the organization and/or official and memorandum
of association.
3.2 Types of
the Account
NR Ethiopians or NR
foreign nationals of Ethiopian origin who are holder of a valid
identification card, obtained pursuant to proclamation 270/94 may open the
following types of non-resident foreign currency accounts in the domestic
banks:-
a) NR Fixed
(time deposit) foreign currency account, which takes the form of a deposit
certificate, issued in the name of the depositor for a fixed period of
time. Maturity period may vary based on the agreement made between the
depositor and the opening bank. However, the minimum maturity period
for such an account shall be six months.
b) NR foreign
currency current account, which takes the form of current deposits where
withdrawals may be made at any time upon demand by writing a check and/or
a pre-arranged procedure adopted by the opening bank.
c) In order to
encourage medium and long-term deposits, a maximum limit is also set on NR
foreign currency account at USD 5,000.
3.3 Types of
Currencies allowed to Open the Account
In order to reduce
problems associated with exchange rate fluctuations the directive
restricts the types of currencies to be used in crediting the
account to four major currencies, namely the USD, Pound Sterling, EURO and
Japanese Yen. All other currencies should first be converted in to
one of the above currencies at the prevailing exchange rate.
3.4 Operation
of the Account
The directive allows
individuals who want to open NR accounts to do so either in person or use
mail, fax, telex or any electronic communication.
3.5 Crediting
the Account
To help ensure that
the foreign exchange to be credited in the NR foreign currency account has
originates, from abroad, crediting the account is restricted to one of the
following forms:
a) Direct
crediting of the account from foreign sources through the banking system.
b) Traveler’s cheques brought by the account holder from abroad
c) Cash notes provided that the account holder presents a signed and
sealed foreign currency declaration form
d) Check deposits that originate from abroad
e) A transfer from another type of non-resident foreign currency
account owned by individuals and/or enterprises.
3.6
Use of the Account
The directive
stipulates that the foreign currency accounts could be used
a) To make local payments in Birr
b) To transfer to other foreign currency accounts which may include
transfer to another foreign currency accounts in any of the authorized
commercial banks in Ethiopia.
c) To make foreign payments such as import and other foreign service
payments provided the account holder has the required business license to
do so
d) To effect transfer abroad.
e) To convert into a Birr account at the ruling exchange rate
f) Payments for bank charges, if any, levied by the opening bank.
3.7 Interest
Rates
-
To
encourage medium and long term deposits and attract more foreign
exchange, interest will be paid only to those who open NR fixed
foreign currency accounts.
-
Depositor in NR
fixed foreign currency account shall get 50 percent of the interest
paid by the correspondent bank of the opening bank. However, interest
is paid only to those fixed deposits that are kept for a minimum of 6
months.
3.8 Prohibitions
To minimize abuse of
the opportunity and discourage illegal activities, the directive also
stipulates the following:
-
When a
non-resident Ethiopian change his/her permanent residence to Ethiopia,
his/her non-resident forex account shall be converted into resident
Birr account at the prevailing inter-bank exchange rate by the opening
.
-
For fixed
deposit, the account may remain as non-resident foreign currency
account if the account holder return to Ethiopia for permanent
settlement before the maturity date of the account. Upon
maturity of the account, however, such deposit should be converted to
resident Birr account.
-
Foreign exchange
acquired either from forex bureaus or any other local sources or
foreign exchange held locally shall not be used to credit and/or open
a foreign currency account.
-
Opening
banks shall not
