SOURCES OF FOREIGN EXCHANGES EARNINGS OF ETHIOPIA: CHALLENGES AND PROSPECTS

Abstract

Foreign exchange earnings are one of the critical components for the economy of countries. Ethiopia, one of the developing countries which struggle to increase the foreign exchange earnings is facing not only challenges but also prospects. This study examined the sources, challenges, and prospects of foreign exchange (forex) earnings in Ethiopia during 2009/10–2018/19, focusing on export sectors and institutional constraints. Using a mixed-methods approach, data were collected from 165 exporters via structured questionnaires. Moreover, data was generated from key informant interviews, and mining from secondary sources (National Bank of Ethiopia, Ministry of Trade, and World Bank). Findings reveal that Ethiopia’s forex earnings remain heavily dependent on primary commodities, with coffee (24.4% of exports), pulses/oilseeds (19.2%), and flowers (9%) dominating. Despite a 6.9% annual export growth, structural vulnerabilities—such as price volatility, forex shortages, and limited value addition—hinder sustainable earnings. According to data summarized from exporters, critical constraints were identified which include financial barriers (high interest rates, 62%), exchange rate volatility (58% citing forex shortages), and infrastructure deficits (45% highlighting port inefficiencies). Institutional challenges, such as bureaucratic delays (52%) and corruption (55% dissatisfaction), further exacerbate trade inefficiencies. However, 80% of exporters acknowledged that currency devaluation boosted competitiveness, and 90% expressed optimism for future expansion, particularly in textiles and horticulture. The study underscores the need for policy reforms to enhance diversification, improve access to finance, and streamline trade logistics. Recommendations include strengthening value-added exports, leveraging regional trade agreements (e.g., AfCFTA), and addressing systemic bottlenecks to align Ethiopia’s forex earnings with its developmental goals. These insights provide actionable strategies for policymakers to mitigate vulnerabilities and harness untapped export potential.