Devaluation in Ethiopia:  How Should Employers React?

Devaluation in Ethiopia: How Should Employers React?

On October 10, 2017, Ethiopia’s Central Bank announced a devaluation of the Birr of 15%.  We have over 80 clients subscribing to our multi-sector and NGO Local Pay surveys there, and naturally, a few have already been in touch to find out what, if anything, is happening in Ethiopia amongst employers to respond to this action.

The short answer is nothing – not yet, anyway.  It’s only been a week or two since the devaluation occurred.  It is quite common for employees to turn to their employer when devaluation or inflation occurs and ask for more money.  Employers, however, manage compensation based on the cost of labor as measured by market surveys, and the supply of and demand for talent.  It will take some time before the impact of the devaluation is fully addressed by these market forces.

While the market adjusts to the new economic realities in Ethiopia, here are some tips to consider when managing compensation for local staff

Employers Should:

  • Monitor market movement
  • Participate in spot surveys
  • Network with other employers
  • Communicate often with employees
  • Rely on a Special Measures Policy to guide company actions

Employers Should NOT:

  • Convert salaries to US dollars or other hard currencies
  • Grant increases without considering their competitive market position
  • Make ad-hoc adjustments without being aware of market activities

You Need a Policy!
There is one thing every employer operating in Ethiopia and other developing countries should have, and that is a Special Measures Policy outlining the proactive steps your organization will take when economic or other external events occur. The policy should include specific triggers and a clear way to transition any allowances into salary over time. A policy-driven approach provides clarity for all people impacted by the crisis and enables employers to act quickly and decisively, leading the market and improving retention.

Other Resources
In March, 2016, we conducted two webinars on the subject of Special Measures.  Recordings of the webinars are available at the links below:

How Birches Group Can Help

Birches Group can assist employers in developing a sound Special Measures Policy, which should address not only high devaluation but also inflation and non-economic events such as civil war or unrest and natural disasters.  Our salary survey in Ethiopia, like all our surveys, is updated three times a year, in April, July and October.  Subscribers can rely on the updates to assist in monitoring market movement post-crisis.

For more information about our surveys or for assistance in developing a Special Measures Policy, please contact us.

posted on October 19, 2017 / Africa, Blog, Featured