ETHIOPIAN TOURISM – Currency mishandling and Tax evasion

The banks in Ethiopia are suffering a constant shortage of currency with which to conduct trade. The Ethiopia Birr has lost about 30 percent of its value against the US dollar and the euro since January 2009.

Many problems continue to plague the market and the gap between the official and parallel market dollar rates remains vast. Foreign currency is still as inaccessible as it was before. In contrary to this, foreign currency is available on the underground economy or black market. This is a market where commerce is conducted without regard to taxation, law or regulations of trade.

Tourism business is extremely susceptible to currency and tax abuse. Tourism is one of Ethiopia’s most important industries and a major source of foreign exchange. Considering the potential for tourism specialization based on its history and culture, tourism is conceivably will became the primary source of service export earnings.

Lack of transparent hard currency controls on tourism business and transactions in hard currency is leading to a black market and evasion of tax.

Tour operators are a critical link in the tourism supply chain and for long Haul emerging destinations such as Ethiopia, tour operators are the major driver of business.

 According to the WB (World Bank) report, there are currently 75 tour operators in the market of which about 15-20 handle most of the international business. These local tour operators are asking their counterparts abroad to make the payment to their own foreign country accounts abroad banks, but not in Ethiopia. The funds come from abroad in foreign currency are not through the local Ethiopian banks but conducted via non bank sectors. Sadly, the number of Forex scams by major tour operators is rising.

We have a whole service sector in Ethiopia being robbed of a turnover value of about $600 million a year. This has a direct impact on the National Bank’s currency reserves and its ability to support the birr. In some cases, an economy should attempt to increase confidence in the local currency by supporting it against a hard currency.

Another problem currently facing the tourism sector is that most tourist companies have recently been refusing to accept credit cards, leading to a drop in credit card transactions in the sector by 30 percent since January. If they trade via debt or credit cards the transaction will be through the banks.

Of course, when companies convert their hard currency earnings, banks also have a responsibility to provide these companies with enough foreign currency to finance their operations.

The economic impacts of tourism can be divided into three types: balance of payment effects, income effects and the employment effects. One of the strongest arguments for promoting international tourism as a development strategy to stimulate economic growth is its capacity to earn much needed foreign exchange and thus help with balance of payments.

There are many types of actions that can be undertaken in the interest of Ethiopia’s tourism industry by Ethiopian government institutions such as the Ministry of Tourism & Culture, the National Bank of Ethiopia and the Federal Revenue and Customs Authority.

Since 2004, Ethiopian authorities have been trying to design a law in order to control money laundering. The Parliament has endorsed a bill on Tuesday, July 6, 2009, criminalizing the practice of money-laundering.  A provision in the bill also obliges depositors to disclose the source of their money when depositing or transferring funds, sources disclosed

1.    The government should continue to prove its commitment and willingness to develop tourism through special initiatives and incentives.  The government allowing duty free vehicle for tour operators is a good step but the incentives shouldn’t be abused by other parties. In conjunction with private sector tourism, develop programs to build tourism in Ethiopia, such as properly targeted advertising in source markets throughout the world.

 Investigate the flow of hard and soft currency in the tourism industry.  The first step should be step up efforts to crackdown on abusive business practices by individuals and tour operation companies regarding currency handling. The Tax Office should work closely with the Ministry of Tourism and the Association of Tourism Operators to solve these problems. The National Bank and Ministry of Tourism should work cooperatively with the Tax Office to find a solution which is fair and provide information to identify which tour operators are following the right business practices. 

3.    Emphasize the need for planning and sustainable growth of the tourism industry. 

4.    Tourists’ awareness at the point of entry to Ethiopia.  When visitors are identified by airline or government authorities as being in the country for tourism purposes, hand them a brochure that covers ethical practices for exchanging their hard currency that they and their tour companies should observe. 99% of tourists coming to Ethiopia are serious and intelligent people that will recognize the issues of proper currency handling for the benefit of Ethiopia’s economy. Possibly other useful tips and advice should be included in the brochure as well. 

5.    Licensing of operators with yearly reviews of business records. All tour operators and suppliers of tourist services should be licensed by the Federal government to conduct business in Ethiopia. This is an important step to level the playing field for all operators with regards to currency handling and tax collection. The list of licensed operators should be provided in the brochure mentioned above, to visitors entering the country. 

6.    Local Banks should start accepting credit cards.  Dashen Bank is the only bank accepting Visa and MasterCard credit cards. Tourism transactions conducted through non bank sectors and professions remain viable mechanisms to launder illicit funds. Bank regulation should require the private sector to channel of its transaction through the banking sector.

Source – World Bank (WB)

Advertisement