Addis Fortune (Addis Ababa)
Tamrat G. Giorgis, Endale Assefa, and Tasfalem Waldyes
1 April 2008
Stifled by a runaway inflation whose year-on-year average picked to 22.9pc this month, what ails Ethiopia's economy has been a subject of fierce debate in parliament last week. Tamrat G. Giorgis and Endale Assefa, Fortune Staff Writers, and Tesfalem Waldyes, Special to Fortune, have followed the parliamentary discourse and the mixed public reaction that has followed.
The polemical battle in Parliament held on Tuesday March 18, could not have been any more attention-grabbing. Prime Minister Meles Zenawi appeared before Parliament reporting his administration's economic performance for the first half of the fiscal year; perhaps this was his shortest report ever but it was filled with plenty of confessions about what ails the Ethiopian economy. Yet he was also somewhat voracious in portraying the economy as "sound". He claimed that his administration had met its long-term objectives of gaining sustainable and speedy economic growth, for the fifth consecutive time this year.
This growth outlook has been challenged by runaway inflation, causing scepticism, if not bitterness, amongst the public. The majority, at least according to opposition MPs, are grappling with a rising cost of living.
"We keep listening to the phrase 'fast growth', while at the same time we see the emergence of the 'development hero' in rural areas," said Ali Abegaz, an MP representing a self-describing Parliamentary Group. "On the other hand and at a time when we say we have registered fast growth, the economy is expanding and the living standard is improving; these assertions, publicized widely by the state media, are in contradiction with what is happening on the ground. The cost of living has soared and the low fixed-income group is suffering in an unprecedented manner."
This is not an isolated feeling. Not only are the majority of opposition MPs of the same view but this view is also widely held by the majority of the members of the public surveyed by this newspaper late last week.
"In a country where we are now buying a quintal of teff for 700 Br, I don't think the economy is healthy," Genet Seyoum, a teacher from Sheno, told Fortune in a telephone interview.
She was one of the 53 respondents Fortune randomly surveyed last week by telephone, calling 100 people in Addis Abeba, Bahir Dar, Jimma, Awassa, Harar, Wolliso, Wukiro and Bishoftu (Debre Zeit). Almost half of the people surveyed did not follow the debate on the national TV, either when it was on live or when it was rebroadcast.
From those who followed it, the reaction to what the Prime Minister had argued was strikingly close; 51pc are convinced that the economy is fundamentally on the right track, while 49pc believe tht the current inflationary onslaught on the economy is only transitory in nature.
Prices have indeed been escalating since December 2005 and this has happened despite a series of relief measures taken by the federal government, such as subsidising the imports of oil products against skyrocketing international prices and discounted distributions of wheat and edible oil to the urban poor. For instance, the price of cereals, a basket of grains including teff, has registered a jump of 18.4pc in the year-on-year average between February 2007 and February 2008, according to a Consumer Price Index (CPI) released this month by the Ethiopian Statistics Agency (ESA), the only authoritative source on the subject. Headline inflation during this period showed an increase of 22.9pc, according to the same source.
This is a rate much higher than the annual seven per cent the government had anticipated when it designed its five-year growth and poverty reduction strategy approved by Parliament in 2006. Meles could not help but accept his administration's failure to keep inflation at bay.
"Although our objective in achiving sustinable growth is succeeding, our effort to control inflation has not yielded the desired result," he said.
The Prime Minister declared that his government has no worse enemy than inflation at the moment. Yet, Meles argued that the economy is healthy and in a good shape when looked at from a long term perspective; exports have grown by 32pc in the past eight months, he noted.
To the credit of his administration, revenues from exports reached 1.2 billion dollars in 2006/07, jumping by 18.5pc from the previous year, hence resulting in an impressive surplus of 85.1 million dollars in the balance of payment.
Unfortunately, this could not rescue the economy from a relentless inflationary pressure, a phenomenon Meles attributed to the escalating price of oil in the international market (which consumes a large portion of the nation's import bills), underdeveloped commodities market, which he said is manipulated by speculative businesses, and a sudden unpredicted monetary expansion of the economy.
For Temesgen Zewdie, a vocal opposition MP, there are a few good excuses in the long menu of justifications made by the government. According to him, the prime minister has blamed everyone, apart from himself, for the country's economic problems. Temsegen told Fortune of how the prime minister had first blamed the farmers for holding onto their produce and waiting for better prices. Then he had blamed the traders for making the same mistake of hoarding; later on, the Prime Minister argued that inflation was a result of growth itself. "And now, he blames international oil prices", Temsegen went on.
"This clearly demonstrates that the executive body has been doing nothing but come up with pretexts for the economic condition it didn't understand," said Temsegen.
Prime Minister Meles says he knows what is happening to the economy. It has caught something like the flu, he said, which is no worse than irritating.
Some people among are in the public do not buy it.
"Do you believe that?" said a stunned Tesfaye Tegegn, hairdresser from Addis Abeba. "He [the Prime Minister] has the courage to create a parallel between the cost of living and the flu."
His bitterness is shared by Yassin Ahmed, from Adama (Nazareth). "I admire the Prime Minister," he told Fortune. "However, I don't agree with what he said. The raising cost of living could be like the flu to him. It is a burning flame to us."
Although these are voices of a significant number of critics of the Prime Minister from among respondents to Fortune's questionnaires, the majority of them - close to 60pc - were persuaded by his argument that the economy is strong enough to bear the cold and survive the inflationary storm.
"What the Prime Minister said is right," Asherie Hussien, a housewife from Kaliti, told Fortune. "The problem is temporary; it will be resolved in time. The economy is growing."
An employee of a printing press, Lemma Bonger is one of the respondents satisfied with the Prime Minister's explanations. In particular he was pleased to hear Meles sympathise with the low income group in urban centres, whom he said constitute 10pc of the population that is left out of the economic growth.
"No one can deny the existence of growth," said Lemma. "The hardship is the work of greedy businesses."
The opposition, understandably, has not been generous. The toughest challenge to the Prime Minister came from Lidetu Ayalew (MP-EUDP). Despite his contention with the report that the governing party has recognized inflation and raised the cost of living to becme a major problem, and its belated move in lifting value as well as turn over taxes in a bid to boast income, Lidetu told Fortune he was not happy with the explanations the Prime Minister offered to his series of concerns.
He believes the economy, despite growth, is not sustainable; and neither is it distributed equitably to the majority of citizens. Lidetu sees an economy that suffers from "hypertension", waiting to collapse, should it be left untreated. Chief among his worries is the real source of an increased monetary circulation in the economy, a view widely shared by other economists.
Traditionally, Ethiopia's inflation is visible in times of distress caused by drought as was the case in 2003. Then gross domestic product (GDP) registered negative 3.9pc: productivity was down, so prices were high. This is what Wolday Amaha (PhD), president of the Ethiopian Economic Association, sees as a conventional phenomenon.
"When there is a bad harvest, prices increase and inflation follow," he told Fortune. "Now, there is a good harvest and yet prices are going up. This demands different analysis and study; contrary to the normal demand and supply curve."
A PhD economist, who requsted anonymity, told Fortune, he is doing exactly that, in collaboration with his students. He said the result of his research is due in two weeks, although he increased credit by banks and public expenditure as main culprits.
"When an economy registers growth as a whole, upward prices in the food sector slows down by a significant amount depending on the relative growth," says this economist. "But this is not a major inflationary cause as it is presented by government agencies."
Indeed, the size of monetary circulation in the economy has expanded significantly over the past few years. In the first half of the fiscal year, analysts estimate that it has grown by close to 20pc, to reach a little over 55 billion Br.
"There is more money in the market than could be gained from an increase in production," said Lidetu. "The government knows this but does not identify where it comes from."
There are suspicions that are widely circulating, rumours on the existence of illegitimate currency circulating in the economy, while other economists are pointing their fingers at an increasing state borrowing to finance budget deficit, estimated at reaching five per cent of GDP.
Indeed, there is a marked growth in the money supply. For instance, the total stock of outstanding credit by the state and private-owned commercial banks in 2006/07 was 31.1 billion Br, showing an annual growth of 16.3pc, according to a progress report produced by the Ministry of Finance and Economic Development on the Plan for Accelerated and Sustained Development to End Poverty (PASDEP), released in December 2007.
A policy advisor to the government says that a large part of this domestic lending by commercail banks goes to the private sector. He is probably telling the truth. Of the 15.5 billion Br these banks disbursed in 2006/07, a 25pc jump the previous year to an overwhelming 94 pc was made to the private sector. The picture for the two quarters of the current fiscal year is not much different; of the eight billion Birr commercial banks advanced, 55pc went to the private sector.
Meles' promises for fiscal discipline, limiting his government's domestic borrowing to 2.7pc of the GDP, is estimated to reach 4.6 billion Br.
Although late, his administration seems to be keen in taking a mix of fiscal and monetary measures to combat inflation, aside from its bashing of what it described as "fraudulent businesses".
It has already lifted taxes on grains beginning last week, in addition to monetary policy measures announced late last week by the central bank in putting up the reserve commercial banks keep from 10pc to 15pc, a second and two fold increase since June 2007. He banks on the launching and operations of Ethiopian Commodities Exchange market, which is under formation, as a lasting fix to the problem, whether it is "the irritant common cold" he chose to describe or "terminal hypertention", the preferred view of his opponents.
The Prime Minister announced his administration's determination in keeping subsidising basic commodities to low income groups, while pursuing sustainable economic growth, still convinced that the current inflation is due to expansion in the economy, and could only be tackled by further growth.
"We can't be sure when we will bring inflation under control," Meles told Parliament. "But we can be sure it won't take us long."
In the meantime, he urged the public to be calm and patient. Judging from Fortune's random survey, majority appear to have given him what he asks for
Be the first to Write a Comment!
Copyright © 2008 Addis Fortune. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections — or for permission to republish or make other authorized use of this material, click here.
AllAfrica aggregates and indexes content from over 125 African news organizations, plus more than 200 other sources, who are responsible for their own reporting and views. Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica.
