|The National Bank of Ethiopia Establishment (as Amended) Proclamation No. 591/2008
According to the National Bank of Ethiopia Establishment (as Amended) Proclamation No. 591/2008 (herein after the Proclamation), the National Bank of Ethiopia, which is accountable to the Prime Minister, is the major government organ that regulates foreign exchange transactions in Ethiopia. The mandates of the National Bank of Ethiopia in relation to foreign exchange includes,
- to formulate and implement exchange rate policy;
- to manage and administer the international reserves of Ethiopia. The reserve is managed to cover payments of imports, payment of foreign debt commitments (such as export) and payments for basic services (Article 19 of the Proclamation);
- to set limits on gold and silver bullion and foreign exchange assets which banks and authorized dealers can hold;
- to set limits on the net foreign exchange position and on the terms and the amount of external indebtedness of banks and other financial institutions;
- to accept deposits of any kind from foreign sources;
- to act as banker, fiscal agent and financial advisor to the Government;
- to take such steps to establish, modernize, conduct, monitor, regulate and supervise payment, clearing and settlement systems;
- to exercise such other powers and functions to execute its purposes as central banks customarily perform; an
- to monitor foreign exchange transactions of banks, insurance companies and other financial institutions through on-site inspection and off-site surveillance.
Based on its power to issue directives the NBE has enacted several directives on the regulation of foreign exchange. The directives determine the conditions, limitations and circumstances under which a person/entity can possess and utilize foreign currency or instruments of payment pertaining to foreign exchange. Moreover, the directives regulate the terms and conditions for transfer of foreign currency to and from Ethiopia especially in relation to export and import. Some of the directives used by the NBE include;
|Transparency in Foreign Currency Allocation and Foreign Exchange Management Forex Directive/46/2017
|Amendment of Retention and Utilization of Export Earnings and Inward Remittance Forex Directive/70/2021
|Amendment FXD-70-2021 Retention Account Forex Directive/73/2021
|Amendment of External Loan and Suppliers Credit Forex Directive/76/2021
|Transparency in Foreign Currency Allocation and Foreign Exchange Management Forex Directive/77/2021
|Foreign Exchange Surrender Requirements of Banks (As Amended) Forex Directive/78/2022
|Amendment of Retention and Utilization of Earnings and Inward Remittances Forex Directive/79/2022
|Limits on Birr and foreign Currency Holding in the territory of Ethiopia Forex Directive/81/2022
|Amendment of External Loan and Suppliers Credit Forex Directive/82/2022
Here are some highlights of the Regulation of Foreign Exchange (the Proclamation and the above Directives)
Definition of Foreign Exchange(Article 2(6,5, and 13) of the Proclamation)
Foreign exchange means any foreign currency (any currency other than the Ethiopian legal tender); cheques, bills of exchange, promissory notes, drafts, securities, and other negotiable instruments, expressed in foreign currency; and bank balances in account held in foreign currency or assets in the form of foreign account crediting or set-off arrangements, expressed or payable in foreign currencies provided they are acceptable by the National Bank.
Who can engage in foreign exchange transactions?(Article 2(1 and 13) and Article 20 (1) of the Proclamation)
A foreign exchange transaction means:
a. the transfer, borrowing, lending, assignment, exchange, purchase, sale, receipt, payment or crediting of foreign exchange; and
b. the conclusion of any contract, agreement, arrangement or understanding, as a result of which any foreign exchange is transferred, borrowed, lent, assigned, exchanged, purchased, sold, received, paid or credited within or outside Ethiopia;
According to article 20(1) of the proclamation, there are three ways a person/entity could engage in a foreign exchange transaction. The first is a person/entity may be an ‘authorized dealer’ which means that such person/entity other than banks is authorized by the NBE to engage in foreign exchange transaction. The second way is through authorized banks which can engage in foreign exchange transaction. Third, a person or entity may have a special permission of the NBE to engage in foreign transaction. From these three ways, banks are mostly used to settle a foreign exchange transaction commitment.
Foreign Exchange Allocation and Priorities(Article 6 of Directives No. FXD/77/2021)
Sub Article 6.1 Imports of essential goods:
In the allocation of foreign currency a bank shall give priority for the categories as listed in First priority, Second priority and Third priority to the following import items and payments, among them, on first come first served basis.
- Pharmaceuticals - Medicine, input for manufacturing of pharmaceuticals and laboratory reagents
- Input for manufacturing of Edible Oil
- liquefied petroleum gas (LPG)
- Input for Agriculture: Fertilizer, Seed, Pesticide and Chemical
- Input for Manufacturing: Raw material and Chemical
- motor oil and lubricants;
- agricultural inputs and machineries:
- irrigation pumps,
- animal feeds,
- machineries and equipment,
- tractors, harvesting machineries and their spare parts,
- animal hybrids;
- pharmaceutical product:
- laboratory equipment
- medical equipment and appliances;
- manufacturing industries requests for procurement of machineries, equipment, spare parts, and accessories;
- import of nutritious food for babies;
- spare part for construction machineries for own use construction companies whose total values not exceeding USD 50,000;
- educational materials
- exercise book, ball pen, pencil and
- printing papers,
- profit and dividend transfer
- transfer of excess sales of foreign airlines;
- sales from share and liquidation of companies by FDI
- 6.1.1: The total foreign currency allocated for imports listed under article 6.1 above by a bank shall not be less than 50% of the total foreign currency allocated for all import of goods and services at any time. The 50% allocated under 6.1 above shall be distributed 15% for first priority, 45% for 2nd and 40% for 3rd priority.
- 6.1.2: In case the allocation to the imports listed under article 6.1 above is less that 50% of the total foreign currency aaloaction for all import of goods and services at any time,the bank is obliged to surrender the difference to the National Bank every month within the first five working days of the next month.
- 6.1.3: In case the utilization of allocated foreign currency under 6.1.2 above is less than 50% of the total foreign currency allocated for all import of goods and services at any time, the bank shall surrender the difference to the National Bank every six months ie. on June 30 and December 31 within the first five working days of the next month.
- 6.1.4: The National Bank shall credit the payment and settlement account of the bank with equivalent amount in birr at the prevailing mid exchange rate.
Sub Article 6.2: Special approval for import of spare parts
- In the case of interruption of production due to damage parts of machinery or equipment and small value critical inputs, CEO of the Bank is authorized to give special approval for import of spare parts requested by Manufacturing or Agricultural sector.
Sub Article 6.3: Special priority approval by vice governor
- The Governor or Vice Governor of the Monitory Cluster of the National Bank may give special priority approval for Financial Institutions, Federal Government, and Regional Government and City administrations requests in a case by case basis.
Sub Article 6.4: Foreign Exchange sales on demand
Items listed under this article are exempted from registration procedure required under sub-article 6.1 and shall be served on demand.
foreign currency requests from:
- Non-Resident Foreign currency and Non-Resident Transferable birr account,
- Foreign Currency accounts of Non-resident Ethiopian and Non-Resident Ethiopian Origin,
- Retention accounts,
forex request for all transaction set under the operation of forex Bureau Directives No. FXD/17/2001.
invisible payments i.e.,
- consultancy, commissioning, installation, erecting and royalty fees;
- payment of services and travel payment and other invisible transaction drawn from Non-Resident Non-transferable accounts;
- area Commissions for refueling jet oil by oil companies;
- communications and other service payments ie. Telecom service charge satellite service payment postal service charges;
- aviation service payments and associated costs;
- salary, allowances and administrative expenses of Ethiopian Diplomatic missions abroad and representatives of Ethiopian companies in Djibouti and other countries;
- naval personal, Djibouti Ethiopian customs authority, licensed transit and forwarding companies and other oil companies, Ethiopian Orthodox church transfer abroad;
- travel allowances for religious institutions;
- cargo handling, fright and other associated costs like container service, storage, port dues incurred on goods handled in transit by shipping and forwarding firms licensed to handle such services;
- payments on imports and export freight and transit services;
- payment for quality claim, loss in weight, commission, superintendency or survey fee, demurrage request by exporters;
payments authorized by the National Bank:
- external debt payment obligation ie principal interest and fees
- supplier’s credits,
salary transfer of foreign employees.
Sub Article 6.5 List Amendment
- National Bank may amend the above lists under sub-articles 6.1 and 6.4 as required.
Sub Article 6.6 First Come First Served Basis
- Notwithstanding sub-article 6.1 of this Article, a bank shall sale foreign currency to its all other customers on the basis of first come first served basis.
Sub Article 6.7 Foreign Exchange Receipt of an Exporter
- A bank shall allocate foreign exchange receipt of an exporter in line with the "Retention and Utilization of Export Earnings and Inward Remittance" Directive
Retention and Utilization of Foreign Currency for Exporters(Directives No. FXD/70/2021, FXD/73/2021, FXD/79/2022 )
- An exporter has a right to retain their foreign exchange earnings but only through retention accounts. In plain word, an exporter can obtain the foreign currency which is paid to him by the buyer, provided that he/she has a retention account in one of the banks authorized by the NBE.
- An exporter or earner of foreign currency can keep 20% of its export earnings indefinitely in its retention account. The exporter may utilise the forex in his retention account for any import material provided he has the license to import the product.
According to Directives No. FXD/ 77/2021, some of the prohibitions in relation to foreign-exchange include
- A bank by no means shall allocate foreign exchange collected from an exporter to import business of the same outside the proper procedure stipulated under article 6 of the directive;
- A bank shall not approve a purchase order under CAD without collecting full amount in Birr of the purchase order value except for import application made by the manufacturing sector;
- A bank shall not approve L/C application without collecting minimum of 30% of the L/C value in cash up front. However, banks may exempt for import by the manufacturing sector from this restriction.
- A bank is shall not release the CAD documents to their customers without effecting payments to suppliers based on the modality of payments as per the international practices under such circumstance the bank shall issue utilization ticket within three days to confirm the transfer of foreign currency.
- A bank is shall not issue permit for goods shipped before approval, after expiry of L/C and purchase order. However, extension of validity of L/C or Purchase Order is allowed before shipment of goods for good cause. Apart from this the Bank CEO may give approval to issue import permit for goods shipped before approval of after expiry of L/C or purchase order by giving warning letter to the importer if the case is found acceptable
- A bank shall not register import request without deposit of 50% of total proforma invoice from importers categorized under non priority lists. The deposit shall be kept in the blocked account and the bank is obliged to pay a minimum saving rate until date of approval.
- A bank shall not process import applications for approved foreign currency exceeding the period of 15 working days from the date of notification. The notification shall be attested by written evidence or any other electronic communication that shall be retrieved for validation.
- A bank shall not register more than two proforma invoices including the previously registered under the waiting list
- A bank shall not attach foreign exchange allocation with any other services in the bank as long as the customer fulfills required documents for import.
- A bank shall not accept request on change of items after registration of Proforma invoice. However, item change may be allowed at the time of approval of foreign currency if the approval waiting time takes more than six months and three months for non-priority and priority sectors, respectively. Furthermore, a bank may allow importer's request to increase quantity of an item in lieu of decreasing another item without changing the list of items and total value of the registered proforma invoice at the time of foreign currency approval.
- Unit Price increase up to 5% of the registered value for good cause may be entertained by a bank however there shall be no limit for price decrease unless it is restricted by the Directive "Setting of Indicative Minimum Price for Selected Import Item". However, the CEO of a bank may approve price increase more than 5%, if the price change is related to international market price of the commodity and supported by sufficient data
- The Governor or Vice Governor of the Monitory Cluster of the National Bank may give waiver for prohibitions stated above on a case by case basis.
Foreign Currency Hold limits
(Article 4 of Directive No. FXD/81/2022)
According to article 3 of Directive FXD/81/2022, no person residing in Ethiopia is allowed to hold foreign currency for more than 30 days since the date of acquisition and/or declaration of the foreign currency. Thus, any person residing in Ethiopia cannot possess a foreign currency for more than 30 days. Further, a person residing in Ethiopia entering into the country from abroad carrying foreign exchange currency exceeding USD 4000 or equivalent in any other convertible foreign currency should declare by using foreign currency Customs Declaration Form prepared for this purpose on arrival at Airport or any other entry point into the country.
On the other hand, any person not residing in Ethiopia who enters into the country carrying foreign currency exceeding USD 10,000 or equivalent in any other convertible foreign currency should declare the foreign currency in his possession by using foreign currency Customs Declaration Form prepared for this purpose on arrival at airport or any other entry point.
Therefore, there are two major rules relating to the regulation of foreign currency hold limits. The first is that any person cannot possess foreign currency for more than 30 days. Further, persons residing in Ethiopia and persons not residing in Ethiopia are required to declare foreign exchange Customs Declaration, where such persons are holding more than the limits specified above. However, a person not residing in Ethiopia may hold his foreign currency up to the visa validity period provided that he/she has declared foreign currency customs declaration, for holding more than USD 10,000 or the equivalent of other foreign currency.
In relation to the permissible amount of foreign currency for travel abroad, there are also two major rules. The first is that any person residing in Ethiopia is allowed to carry with him foreign currency for which he can produce a bank advice or a foreign currency customs declaration. Second, any person not residing in Ethiopia who is travelling abroad and carry with him foreign currency exceeding USD 10,000 or the equivalent in other convertible foreign currency is required to produce a bank advice or a foreign currency customs declaration declared at the entry point.
Penalties in relation to violation of the law in relation to foreign currency(Article 26 of the Proclamation)
Whosoever in violation of the provisions of the Proclamation or regulations or directives issued pursuant to the Proclamation is criminally liable if he/she:
- engages in transactions of foreign exchange or fails to declare to a bank or authorized dealer when he acquires foreign exchange or the right to receive foreign exchange;
- receives or effects payments in foreign exchange;
- delays his receipt or extinguishes his right to receive foreign exchange;
- leaves or attempts to leave or enters or attempts to enter Ethiopian territory carrying Ethiopian currency in excess of the amount fixed or authorized by the National Bank; or
- is found carrying foreign exchange in excess of the amount fixed or authorized by the National Bank;
- in any other manner violates or obstructs the implementation of the Proclamation or regulations or directives issued pursuant to this Proclamation;
A violation of one of the above rules entails confiscation of the property which the offense is committed and punishment in accordance with the Criminal Code of Ethiopia and Article 26(2) of the Proclamation.
Some of the punishments by virtue of article 26(2) of the Proclamation include:
- Rigorous imprisonment not exceeding 15 years and fine not less than Birr 50,000 and not exceeding Birr 100,000 where the accused misused the power of his official position or where he committed the offence with intent to improperly amass wealth or where the offence is committed repeatedly;
- Where the offence is committed by a body corporate, the fine may be raised to six times the value of gold, currency, security, goods or any other property with which the offence is committed;
- Whosoever commits over or under invoicing of imported or exported goods shall be punishable with fine up to three times the value of the property and with rigorous imprisonment from 15 to 25 years; and
- Where any offence under the Article is committed by a body corporate, the director or any other official who was, at the time of the commission of the offence, responsible for the management of the body corporate shall be jointly liable and shall be punishable with rigorous imprisonment from seven to ten years and with fine from Birr 50,000 to Birr 100,000, unless he can prove sufficiently to the court that he had no knowledge and could not, by the exercise of reasonable diligence, have had knowledge of the commission of the offence.