Ethiopia Tightens Rules Governing Exports to Sudan & Somalia

The National Bank of Ethiopia (NBE) has introduced new rules of payment for those who export to Sudan and Somalia. Exporters have been using Cash Against Documents (CAD) method for payments but it can be used no more. This change happened because the NBE identified a gap between the value of Ethiopian goods exported to Sudan and Somalia and the amount of foreign currency returning to Ethiopia. Experts say that some exporters under reported the true value of their exports which is potentially harming the foreign reserves of Ethiopia.

To address this issue, NBE has introduced 2 methods i.e. advance payments or letters of credit for exports.

In the advance payment method, the Sudanese or Somali importer will have to pay the Ethiopian exporter upfront before the goods are shipped. This will eliminate the risk of non-payment for the Ethiopian exporter. However, for this Ethiopian exporters need the trust of Sudanese or Somali importers.

Whereas, in a letter of credit method, bank will have to issue a letter of credit which will guarantee the payment to the Ethiopian exporter upon presentation of documents proving the shipment of the goods. This will protect both the exporter and importer as the bank will ensure the payment.

By making these new rules, the NBE wants to make sure that Ethiopia will receive the full value of its exports. However, this move by NBE will make the exporting process more complex and expensive especially if the bank charges a fee for the letter of credit.

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