Dear Editors,
The recently sealed currency swap agreement between Ethiopia and the United Arab Emirates (UAE) is generating buzz, with many seeing it as a strategic alliance designed to enhance economic ties between East Africa and the Middle East. While the potential benefits of this arrangement are undoubtedly appealing, it is crucial to dig deeper and examine the possible risks that lurk beneath the surface.
Tesfaye B. Lelissa (PhD), in his commentary headlined, “Can Currency Swap Change the Regional Economic Dynamics” [Vol. 25, No. 1265, July 12, 2024], has shared compelling insights into the advantages of such partnerships; but, it would be shortsighted not to consider the counterarguments.
This agreement appears to embody the concept of comparative advantage, suggesting mutual benefits for both countries. However, the evident economic disparities between Ethiopia and the UAE raise red flags about an uneven playing field. The wealthier UAE may leverage its financial clout to dominate critical sectors in Ethiopia.
Imagine this: the robust Dirham could give Emirati businesses a considerable edge in the Ethiopian marketplace, potentially pushing local firms out of the way to securing land, productive assets, and industry control. The fallout could be that Ethiopian businesses and workers find themselves displaced by growing unemployment and deepening wealth inequality.
Tesfaye also argued in favour of the growing trend of digital currencies and payment platforms, but we need to tread cautiously here. If Ethiopia starts to adopt Emirati financial systems or digital currencies, it risks losing the ability to manage its monetary policies — a foundation of economic sovereignty. Harmonising regulatory systems for this swap could lead Ethiopia to adopt the UAE’s more stringent guidelines, possibly imposing foreign standards that do not meet local needs. This could skew the playing field against Ethiopian businesses and consumers.
We can learn from historical cautionary tales, such as those involving currency swap agreements between China and Japan or India and Japan, which struggled with swap sizes and exchange rate policy coordination. Their experiences remind us that Ethiopia and the UAE should remain vigilant to ensure a balanced and equitable partnership. Ethiopian policymakers should conduct a thorough and impartial analysis of the long-term impacts of this currency swap, engaging a diverse group of stakeholders, including independent economists, labour unions, and civil societies, to encourage a transparent and inclusive decision-making process.
We should also recognise that the UAE and other Middle Eastern countries may harbour political and non-secular agendas beyond economic integration. Ethiopia’s rich history and unique cultural identity are treasures that deserve protection. Depending too heavily on the UAE’s financial prowess could undermine Ethiopia’s sovereignty.
Policymakers should take a step back and carefully reexamine their strategies to prioritise the country’s long-term interests. By looking beyond immediate economic pressures, they can ensure that this partnership with the UAE promotes Ethiopia’s economic future, rather than jeopardising it.
Girma Woldemariam
United Kingdom
(kal101@protonmail.com)
PUBLISHED ON
Aug 19,2024 [ VOL
25 , NO
1269]
