Favors & Futures

Welcome to the latest edition of ፍራንክ Digest!

Your weekly brief on all things Finance and Investing. Quick, enjoyable reads for busy professionals in 5 minutes or less.

Topics coming your way:

• 🐝 BUZZ: Ethiopia passes the first IMF review in the Four-Year Arrangement

• 🌽 Lock It In: The power of futures contracts for Ethiopia

• 🗝️ The Key Takeaways 

Thanks for reading!

BUZZ: IMF unlocks USD 345 Million for Ethiopia

Finance

In our BIRR On The Loose article last month, we covered Ethiopia securing a cool USD 3.4 Billion funding arrangement with the IMF over four years. It came with strings attached, conditioned upon certain economic milestones being achieved. An immediate USD 1 Billion was disbursed as soon as Ethiopia floated its exchange rate, with more promised down the line.

Well, the latest news? The IMF is back with more! On September 26th, IMF reached staff-level agreement with Ethiopia on economic policies initiated during the first review, and upon formal agreement Ethiopia would have access to a further USD 345 Million.

Overall, the IMF program will support the Ethiopian government with policy setting and financial support to successfully implement reforms that hope to achieve:

• Macroeconomic stability- by addressing government budget deficits (increase State Owned Enterprise revenues plus improve tax collection efforts) and work towards sustainable external debt levels

• Improve foreign exchange availability- closing the gap with the parallel market and setting market driven policy interest rates

• Sustainable economic growth- laying the foundations for greater private sector participation

IMF’s first review of the Ethiopian economy has concluded that the floating exchange rate has alleviated the acute shortage of foreign currency and lifted a significant impediment to economic activity.

With the release of USD 345 Million, could this mean we will have another round of National Bank of Ethiopia’s forex auction?

Key Takeaways:

• Birr floats, money flows: With USD 345 Million on the way, Ethiopia is seeing steady support from the IMF as it hits reform milestones

• Floating the birr pays off: Ethiopia’s move to a floating exchange rate is already easing forex shortages and unlocking economic potential.

• Macroeconomic stability on track: Ethiopia is focusing on budget fixes, forex stability, and setting the stage for private sector growth under the IMF’s guidance.

ፍራንክ Picks 

🚶🏽 Event: [Sat, October 5th] Founders Live: Global Pitch Competition comes to Addis

🗞️ In the news: Ethiopia ranks near bottom of UN E-government index

♟️ Innovation of the week: Gursha Hub helps Ethiopian content creators cash in

Commodity Futures Contracts’ in Ethiopia?

Investment

In a country where prices fluctuate as quickly as the weather, wouldn't it be nice to lock in a price and forget about the guesswork?

That’s exactly what commodity futures contracts do—offering businesses a way to dodge price volatility and manage risk. Ethiopia, with its agriculture-driven economy, could be a big winner here. Let’s break it down.

What’s a Futures Contract Anyway?

If you’ve ever bought ጤፍ, cement, or even a new car, you know prices can shift dramatically depending on market conditions. Now imagine a way to lock in today’s price, but for a future purchase. That’s a futures contract—essentially, a deal to buy or sell something at a fixed price at a later date.

In the agricultural commodity context, when you buy a futures contract you're making a deal with farmers to buy the produce they haven't even harvested yet. Similarly, when a farmer sells a futures contract they’re selling a produce to a processor/trader they haven’t harvested yet. Both parties avoid nasty surprises caused by price swings.

Who Runs the Show?

Futures contracts are traded on organized exchanges—think of it like a virtual marketplace. The most famous one? The Chicago Mercantile Exchange (CME), which started off trading butter and eggs back in 1898. Today, exchanges like the CME offer futures for almost anything: agriculture, energy, metals, even interest rates!

Here’s why it matters:

• Standardized contracts: Buyers and sellers agree on fixed terms (price, quantity, etc.).

• Liquidity: Exchanges bring together loads of interested buyers and sellers, ensuring smooth trading.

• Initial Margin: Buyers don’t need to pay the full contract value upfront, just a percentage as a "margin."

Why Should Ethiopia Care?

Imagine you’re in the business of producing flour. If drought hits and cuts wheat supply, prices will spike, slashing your margins. But if you’ve got a futures contract in place, you’ve already secured your wheat at a pre-determined price. This hedging protects you from wild price jumps.

On the flip side, farmers can lock in a selling price before harvesting, ensuring their income doesn’t take a hit if prices drop later on.

It’s a win-win for everyone: producers, processors, traders—even us consumers—benefit from more predictable, stable prices…ከእርሻ ወደ ጉርሻ!

• Processors- Futures contracts lock in input costs, protecting margins.

• Farmers- Guaranteed minimum price, reducing income uncertainty.

• Market Signals- If futures prices rise, it signals high demand or low supply, encouraging more production. Falling prices can signal a need to switch to other crops.

Key Takeaways:

• Price Stability: Futures contracts can smooth out wild price swings.

• Risk Management: Both buyers and sellers benefit from securing prices.

• Transparency: Futures prices offer clues about future market conditions.

Find out about the Great Onion Corner for the unlikely but dark side of futures manipulation.

Thanks for sticking with us, ፍራንክ family! Keep those wallets smart and your inbox open - we’ll be sliding in next week!