Forex Market Levels Up

Welcome to the 96th edition of ፍራንክ Digest!

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

Here’s what’s coming your way:

• 🎉 The Forex Party Is Just Getting Started

• 👴 Slow is Fast: What Discipline Can Teach You

• 🗝️ The Key Takeaways

Thanks for reading!

Ethiopia’s Forex Glow-Up 💅

Economy

If you’ve been following the Ethiopian economy, you know that for the past who knows how many decades, the foreign exchange scene was like an exclusive club with a "members only" sign and a bouncer who only let people in above 21+ Million.

Forex rationing is a reality we’re all too familiar with, from businesses down to each and every አጅሬ.

Last week we covered National Bank of Ethiopia’s (NBE) new directive FXD/04/2026 and how it’s likely to change our movie streaming habits. This week we want to bring to attention the formal authorization of forward exchange contracts.

A move that provides the private sector with the mechanisms necessary to hedge against the volatility of the Birr following its 2024 transition to a managed float.

The Star of the Show (at least in our eyes)

The biggest technical "wow" in this update is the green light for forward contracts.

A forward contract is a customized (aka over-the-counter) agreement between a bank and its customer to exchange a specific amount of Birr for USD (or any other foreign currency) at a fixed rate on a specified future date.

If you’re a local factory importing machinery or dozens of containers of raw materials, you used to just cross your fingers and pray the Birr didn’t decide to take a dive before your LC settlement was due. Now, you can enter a contract with your bank to lock in an exchange rate for a future date.   

This gives businesses "budget certainty" and not having to check currency tickers every morning or deliver the ‘bad’ news (sudden price hikes) to your customers.

Forward contracts will also attract Foreign Direct Investments as exchange rates for foreign loan or supplier’s credit repayments and dividend repatriation can be negotiated and secured in advance. Instead of waiting for the central bank to approve, your local commercial bank can now handle it directly. 

Why Service Exporters Should Start Dancing

If you’re in digital services (from TikTok influencers to call centers), tourism or consulting, ኢድ 🌙 came early. The NBE has introduced a 100% retention rule for service exporters.

Previously, you had to "surrender" 50% of your hard-earned dollars to the central bank in exchange for Birr. Now, you get to keep all of it in your account indefinitely. It’s a massive win for Ethiopia’s "weightless" exporters, sectors that don't need a ቀይ ባህር port to reach the world.   

How does this play into the forward contract, you may ask? Well of course, NBE hopes this move encourages increased forex flows through official bank channels. On the other hand, since service exporters won’t be surrendering the forex, this means that banks will have to operate on a Fractional Reserve Banking basis, partially away from its current “off-balance sheet” methods.

Simply put, banks assume that forex account holders won’t withdraw all of their money at once. This allows them to keep only a fraction of the forex deposits in reserve to meet withdrawals, while selling the remaining portion under regular or forward contracts to meet the demands of the economy.

To incentive forex accountholders not to withdraw their money, banks might need to pay attractive interests and offer rewards. Allowing Visa/Mastercard for international e-commerce and subscriptions is one way to ensure depositors keep their forex accounts mostly intact.

Is it All Sunshine and Roses?

Look, we have to be real, this is still a transition. Other neighbors like Kenya moved to a floating rate in the 90s and became a regional financial hub. Nigeria, on the other hand, had some "growing pains" with multiple exchange rates that we’re trying to avoid. 

The reality on the ground in early 2026 is that banks’ access to forex can still be limited even with NBE’s periodic auctions. Which is why we could see a reluctance from banks to enter into forward contracts or they could be pricing the forward rate really high discouraging businesses to participate.   

Bottom Line

Ethiopia has officially moved from a "policing" model to an "enabling" one.

By letting banks offer forward exchange trades and letting service exporters keep their cash, the NBE is trusting the market to do the heavy lifting.   

Whether you’re a business in Addis or a big-time investor looking at East Africa, the message is clear: the "forex crunch" is being treated to health, not just a wound to be tolerated.

ፍራንክ Picks 

🚶🏽 Event: Complast Ethiopia 2026 [March 20-22, 2026 @ Millennium Hall]

🗞️ In the news: Beer Garden owner looking to sell, offers 25% ownership stake

♟️ Innovation: A new day, a new frontier - Tele flirts with streaming

Slow Money: Does Ethiopia Have The Patience for Compounding?

Investing

If the idea of your money having mini-money babies tickles your fancy, you are in the majority.

Sure you can get an extra income and give your money ‘siblings’ but that requires exchanging time and energy for cash and, quite frankly, that’s not how wealth is made. 

Wealth is quite money, slow 🐌 and steady.

If wealth is the engine, then compounding is the fuel (or the electric port at your local EV charging station)

Money doesn’t grow on trees but it does grow in your investment accounts, through steady planning and patient compounding.

We’re not all blessed with the business acumen of a tech entrepreneur, the clever strategic thinking of a world class poker player or the physical prowess and branding power of a world class athlete. So wealth might not always seem accessible but it can be.

Wealth should not be reserved for the chosen few and that’s why compounding teaches us. Keep cool, make the right moves and sometime down the road, your patience will be rewarded.

The mantra is simple: keep your money in an income generating activity (Dividend paying companies, Real estate investments and hopefully soon ‘the stock market’) and just ‘forget’ about it. 

Seriously, just become a distant relative to it, ignore its flirty “You up?” texts. Set up a complicated password that you can’t memorize and ask the account custodians to require a lengthy approval process for you to get any money out of there. This is a PSA for anyone with impulsive tendencies, those thinking in days rather than years.

But before we set you up with a guideline into following the compounding principles, you need to understand what compounding looks like.

Imagine that you have shares in an insurance company, let’s call it ‘አለን አባቴ’.

አለን አባቴ is profitable and likes to transfer profits to its dear shareholders.

Assume that you have ETB 150,000 worth of shares with them. With the industry in good health and አለን አባቴ in top shape, it pays a healthy 35% dividend every year. Juicy.

So Year 1: ETB 150,000 + 0.35(150,000) = ETB 202,500 (~ETB 195,652 after tax)

     Year 2: ETB 195,652 + 0.35(195,652) =  ETB 264,130 (~ETB 254,285 after tax)

     Year 3: ETB 254,285 + 0.35(254,285) = ETB 343,284 (~ETB 331,676 after tax)

     Year 4: ETB 331,676 + 0.35(331,676) = ETB 447,762  (~ ETB 432,620 after tax)

Year 5: ETB 432,620 + 0.35(432,620) = ETB 584,037 (~ ETB 564,287 after tax)

Original formula: A = P(1+[r/n])^n

Where A is the final amount, P is the initial investment, r is the annual interest rate, and n is the compounding frequency

Simplified for our readers: Pn+1 = Pn + r(Pn)

Where Pn is the investment base for year n, Pn+1 is the adjusted final amount while r remains the same.

We’ll stop here with the math before we trigger any undiagnosed calculus PTSD.

As you can see, assuming that the dividend rate (35%) stays the same and you reinvest everything back each time, then by Year 5, you have almost 4Xd your money! 

Your effort = 0. Your usage of brain cells = 100%. 

Let’s be clear, getting the odd 7-8% deposit interest (especially in this Ethiopian economy) is not a winning strategy. Why do you say that? Because, of the local virus called የዋጋ ግሽበት.

With inflation usually at double figures, the compounding of a meager yearly amount won’t be enough to offset the depreciation it causes.

Plus, your initial investment amount is a big benefactor. Start small and the incremental gains are small, start relatively big and the gains are significant. You can always make contributions to make the basis of your investment bigger. That’s on top of reinvesting.

Big Picture

Financial discipline can create a monster. A monster that feeds on time and consistency.

Compounding is that monster and it can be at your mercy right this moment. Compounding doesn’t ask for your social class or even if you come from incredible wealth. It only asks for reinvestments and prays to the gods that you don’t withdraw your money prematurely.

Is this the new secret weapon of the Ethiopian investor? Potentially. At least until sophisticated investing forms pop up and our version of Wall Street gets its own Netflix show.

Until then, slow and steady wins the race.

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