VZCZCXRO2632
RR RUEHROV
DE RUEHDS #0716/01 0721238
ZNR UUUUU ZZH
R 121238Z MAR 08
FM AMEMBASSY ADDIS ABABA
TO RUEHC/SECSTATE WASHDC 9926
INFO RUCNIAD/IGAD COLLECTIVE
UNCLAS SECTION 01 OF 02 ADDIS ABABA 000716
SIPDIS
SIPDIS
E.O. 12958: N/A
TAGS: ECON ETRD EINV EAGR ET
SUBJECT: MONTHLY ECONOMIC REVIEW FOR FEBRUARY 2008
1. SUMMARY
-- The Ethiopian Parliament passed a law imposing taxes on the
export of raw and semi-processed leather and hides; the Council of
Ministers lifted 5 percent duty and 10 percent surtax on imports of
computers.
-- The Government of Ethiopia (GoE) adjusted domestic oil prices
effective January 26; the price for ordinary benzene (automobile
fuel) rose by over 23 percent.
-- Annual headline inflation soared to 19.7% and food inflation to
27.8% in January.
-- The Ethiopian Birr is steadily depreciating against the US
dollar, and the premium between the official and black market rate
is widening significantly.
--The U.S. Patent and Trademark Office awarded Ethiopia trademarks
for its specialty Harar and Sidamo coffee brands.
--Ethiopian exports under the African Growth and Opportunity Act and
Generalized System of Preferences (AGOA and GSP) increased to $8.9
million.
FISCAL POLICY
-------------
2. On February 7, the Ethiopian Parliament approved a bill imposing
export duties ranging from 5 to 150 percent on raw and
semi-processed hides and skins. The major objective of the bill is
to encourage exports of processed hides and skins to increase the
country's foreign exchange earnings from the leather sector.
3. The Council of Ministers passed a decision to lift the 5 per cent
duty and 10 percent surtax on imports of computers based on the role
computers play in technology transfer and education. The 15 percent
VAT and 3 percent withholding tax charged on these goods, however,
have not been lifted. Scholars and businessmen have been lobbying
the government for the last 10 years to lift duties and taxes on
computers claiming that they are fundamental for the economic growth
of the country and continue to advocate the lifting of VAT and
withholding.
DOMESTIC FUEL PRICE INCREASE
----------------------------
4. The Council of Ministers approved a domestic fuel price
readjustment effective January 26, 2008. Domestic oil prices are
adjusted every three months while price shocks are absorbed by a
Fuel Stabilization Fund set for this purpose. Despite oil price
hikes in the world market, the GoE had not increased domestic prices
in the last year, costing the GoE over $350 million in subsidies.
According to the new prices, a liter of regular gasoline is sold for
$1.04, kerosene for $0.62, white diesel for $0.75, black diesel for
$0.64 and super benzene for $0.80 at filling stations in Addis
Ababa. Regular benzene increased by 23.7%, kerosene by 38.8%, white
diesel by 26.8%, black diesel by 42% and super benzene by 43.2%. It
is feared that the oil price adjustment will aggravate already
rising inflation.
PRICE DEVELOPMENTS
------------------
5. According to official statistics published by the Central
Statistics Agency (CSA), annual headline inflation rose to 19.7% in
January from 18.4% in December. Food inflation reached 27.8% in
January in contrast to 25.7% in December. The rise on prices is
fueled by the recent domestic oil price adjustment and the inflation
rate is expected to rise further in February. The GoE argues that
the rise in inflation is a reflection of the broad based economic
growth achieved in the past few years that boosted demand for goods
and services. Meanwhile many economists in the private sector, the
Chamber of Commerce, and opposition parties argue that the different
measures taken by the Government to curb inflation so far have not
brought the desired results.
DEVELOPMENTS IN THE EXCHANGE RATE OF THE BIRR
---------------------------------------------
6. The Ethiopian Birr has depreciated significantly against the
United States dollar in recent months. The inter-bank rate at the
end of February reached Birr 9.3356 per USD in contrast to Birr
9.239 at end of January and Birr 8.8415 a year earlier. The black
market rate has become more volatile and the premium between the
official and black market is widening. Up to Birr 10.25 is
exchanged for a USD in the parallel (black) market, indicating a
widening gap between the official and black market rates. The
depreciation in the local currency is triggered by import demand
pressures as a result of the acute shortages of foreign exchange in
the country.
EXPORTS
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7. Coffee is the country's leading export item contributing 35% of
Ethiopia's annual merchandise export receipts. Annual production
for 2006/07 was estimated at 330,000 tons of beans, of which 220,000
tones were exported earning over $420 million. Ethiopia plans to
boost production of coffee by 20 percent annually over the coming
five years from an estimated production of 400,000 tons and export
receipts of $500 million in fiscal year 2007/08. The U.S. Patent
and Trademark Office awarded trademarks on March 5 to Ethiopia for
its specialty Harar and Sidamo coffee brands, following a dispute
with leading coffee chain Starbucks Corporation over the use of the
two names in the United States. Starbucks is in the process of
setting up a support centre for coffee farmers in Ethiopia.
8. USAID's VEGA Ethiopia's AGOA+ Project, the only bilateral AGOA
trade program in Africa, announced that Ethiopia has been making
steady gains in its efforts to break into the U.S market.
Ethiopian exports under AGOA/Generalized System of Preference (GSP)
have increased by almost 100% to $8.9 million in 2007 since the
project's inauguration two years ago.
YAMAMOTO