What a full shelf costs when the policy rate is 16%

What changed in July 2026

The National Bank of Ethiopia raised its policy rate from 15% to 16% — the first move since the rate was introduced in July 2024 — and at the same time removed the industry-wide credit growth ceiling that had capped commercial bank lending at 24% a year.

Those two changes pull in opposite directions for a retailer. Credit is easier to obtain and more expensive to hold. Which means the question "how much stock should I carry?" now has a sharper answer than it did, because the cost of carrying it is both higher and more visible.

One overstocked line, priced

Suppose you hold 240 units of something that cost 750 birr each, and it sells 15 units a month.

The financing cost alone is 28,800 birr a year — more than the margin on many lines of that size. And that is before shelf space, handling, insurance, obsolescence, or the simple risk that in 16 months you will be discounting it.

The useful way to put this to a buyer is not "we have too much stock." It is: *this line is borrowing 28,800 birr a year from the business, and here is what else that money could have bought.*

Why your own arithmetic beats a benchmark

You will find a great deal of writing that puts inventory carrying cost at "15% to 25% of inventory value annually." Those ranges come from surveys of large firms in other economies, the sources quoting them do not agree with each other, and almost none of them name the survey.

You do not need them. You know your cost of capital — it is on your loan agreement, or it is 16% if you are thinking about what the money would otherwise earn or save. You know your rent per square metre and roughly what share of the floor a line occupies. You know your spoilage. Build the number from those four inputs and it will be both defensible and specific to you.

Where to look first

Not at the biggest pile. At the pile with the worst ratio of value to velocity. An ABC pass over your stock, sorted by months of cover rather than by quantity, puts the expensive mistakes at the top — and they are rarely the ones that look untidy on the shelf.

• Lines with more than six months of cover, ranked by capital tied up.
• Lines whose cover is rising month over month, which is the early signal.
• Lines bought in a single large order more than a year ago and never reordered — usually a one-off deal that looked good on unit price.