The Effect of Availability of Foreign Exchange and Devaluation of Birr on the Performance of Companies in Ethiopia (Instance of Sample Company)

Abstract

When a country devalues its currency, some firms and countries generally benefit from any resulting changes in relative prices, while other firms and countries are relatively unaffected or suffer a loss in competitiveness. By taking a sample of import and export firms, this study assessed the effect availability of foreign currency and devaluation of birr on performance of firms in Ethiopia in general. More specifically it intended to assess the main challenges to access foreign currencies, assess the effects of foreign currency shortage on import/export firms, assess the effects of devaluation of Birr on import/export firms and assess company-specific factors. The study used both primary (collected through questionnaire) and secondary data collected from financial statements of the companies. This study applies both the descriptive and inferential analysis. After detail analysis, the increase in private driven business, Informal channels of inflow of foreign currency, increased population and Corruption will worsen appropriate use of forex and aggravate challenges of shortage of forex. And also it is found that the foreign currency shortage has affected the firms in many ways such as profit loss, lay off employees and discourages new investment. On the other hand devaluation of birr against the foreign currencies makes Ethiopian commodities to be competitive in international markets. And it can also attract new investments and export.