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Flows of Money
In its report Doing Business in 2006, the World Bank notes that Africa’s share of global trade is lower today than it was 25 years ago. According to the report, “The reason is simple: Many entrepreneurs face numerous hurdles to exporting or importing goods.” Access to, and the sufficiency of, money flows are critical to the well-being of any economy. In today’s global economy, adequate flows of money at the national level are essential for a country’s prosperity. Impediments common to Ethiopia, such as burdensome foreign exchange requirements, drive up the costs of doing business. In this light, Ethiopia’s foreign exchange regulations represent a major impediment to trade, clearly contributing to the country’s ranking as the lowest among all countries rated (149th) in the Doing Business in 2006 category of “Trading across Borders.”
Ethiopian authorities have expressed concern about the country’s balance of trade, which is lopsided in favor of imports, and pressures on foreign exchange reserves. The latest IMF report on Ethiopia notes that, although imports are a concern, diminishing reserves are reflective of undercapitalized, overextended public enterprises, as well as of rising oil prices. The IMF further raises “questions about the desirability of maintaining such tight exchange rate management.” Although Ethiopian foreign exchange controls are in no way as restrictive as in times past, the necessity for the current foreign exchange regulations must be balanced against the foreign observations.
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