Addis Fortune (Addis Ababa)
Michael Chebud
27 May 2008
Addis Ababa — Ethiopia's import bill will shoot up by one billion dollars annually, claiming over a fifth of the Federal government budget, due to the soaring prices of oil in the global market, the International Monetary Fund (IMF) has projected.
The price of oil climbed to an all-time high of above 135 dollars a barrel on Thursday, May 22, 2008. Despite the slide back on Friday - driven higher by a combination of long-term production worries and a near-term focus on tight fuel stocks - the price of oil is projected to reach 200 dollars per barrel in the near future.
This will put a painful burden on Ethiopia's already negative balance of trade, IMF delegates said last week, after concluding a two-week consultation with Ethiopian authorities. The five-member delegation, led by Robert Corker, together with Sufian Ahmed, minister of Finance and Economic Development (MoFED), gave a joint press conference on May 19, 2008, at the Ministry's office on King George Street.
The delegates strongly believe that the unabated increase in oil price will exacerbate the negative trade balance that the IMF earlier forecasted to be 20.6pc of the Gross Domestic Product (GDP) in the current budget year, even higher than the 12.6pc five-year average between 1997-2002.
An unsympathetic international audience, at a time when the economy has registered an impressive growth, is costing Ethiopia dearly. Nothing explains the implications of this cost better than the minimal international reserves the country has in the National Bank of Ethiopia (NBE).
THE NUMBERS
$180m
An average monthly spending by the federal government to import oil.
4.1pc
Ethiopia's balance of payment deficit in the year 2007.
20.6pc
Ethiopia's trade balance deficit forecasted by the IMF for 2008.
The oil bill is costing Ethiopia a tremendous amount of money, according to Mr. Corker. This is a view assertively reflected in the press statement issued by the IMF subsequent to the end of the consultation.
"Foreign exchange reserves are below two months of imports," read the statement.
Authorities at the central bank agree that the cost is becoming unsustainable.
"Ethiopia now spends close to 180 million dollars monthly for the procurement of oil," Elias Loha, Reserve Management and Foreign Exchange Market Department manager at the NBE, told Fortune.
"No one knows when it will stop," said Sufian Ahmed, expressing his dismay with the swelling spending of the country on oil.
Not only does this worsen Ethiopia's negative trade balance with the world, for it buys goods and services worth over five billion dollars and sells primary goods worth only 1.5 billion dollars. It also exacerbates the deficit on the balance of payment, which for the year 2007/08 was 4.1pc of the GDP. Although it is much lower than the 4.5pc of the previous year, or the peak of 9.1pc registered in 2006, or even compared to the largest deficit of 43.4pc held by Liberia, what was recorded last year was higher than the three per cent projected by the IMF last year, or the Sub-Saharan average of 1.2pc.
IMF officials are worried that the increase in the oil bill has also become one of the forces pushing inflation higher, increasing the budget deficit to 9.5pc in 2007, larger by five percentage points when compared to the five-year average of 1997-2002. Nevertheless, the highest budget deficit of 13.6pc was recorded in 2003, a year the country's was hit by the worst form of drought that put the life of over 13 million people at risk as a result of food insecurity.
IMF sees an increase in budget deficit from the projected nine per cent for 2008 as inevitable with the increase in what the country is spending to fill its gas stations across the country. This will undoubtedly become inflationary; in April 2008, headline inflation was 19.9pc, while core inflation (on food) was even worse at 26.6pc, significantly rising from 16.9pc at the same time last year.
The IMF has, once again, made a prescription for Ethiopia to reduce the money supply in the economy, although not drastically. The central bank, however, does not seem to be too keen to embark on such a measure too soon.
"We have yet to see the outcomes of the measures we took recently," a source at the Research Department of the central bank, told Fortune. "We are not planning to take on another round of monetary tightening measures now."
The NBE has taken restrictive measures twice in seven months in a bid to reduce the money in circulation, which is growing by 20pc. Last February, the regulator increased reserves banks were required to hold from 10pc to 15pc, while it also decided the liquidity requirement ratio should be 25pc, in an attempt to fend off inflation.
These measures by the central bank - coupled with the other measures taken by the Federal Government in providing cheap and subsidized fuel - did not have the slightest effect on easing inflation, let alone taking it down to a single digit as was initially intended, as Prime Minister, Meles Zenawi, admitted to Parliament on Wednesday, May 22, 2008.
Despite these quandaries troubling Ethiopia, the 185-member IMF sees an economy that is promising if the current growth momentum is kept in motion. For a non-oil producing economy, Ethiopia's real GDP growth of 11.4pc in 2007 (for the current year's projection it is at 8.4pc) is very impressive when compared to Sub-Saharan average of 7.7pc, excluding Nigeria and South Africa. No other African country in the category of a non-oil producing economy has registered such growth in real GDP; the nearest was Liberia with 9.4pc.
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This is an interesting article! Ethiopia is spending close to $2.160 billion US dollars( at $180 million/month) on the import of fuel. All the exports of the Nation won't be able to cover the cost of importing oil, for the total tab for Ethiopian export stands around a billion and a half US dollars. What a dibacle! All our valuable commodities ( coffee, seseame seed etc) cannt even be swapped for oil. if this figures are correct Ethiopia's future is bleak, indeed. Predictions are the price of oil will double soon, meaning our tab will reach 4 billion us dollars soon. It is unsustainable by any stretch of imagination.
The irony is Ethiopia is sitting on major proven Natural gaz deposit in its eastern restive Ogaden region which could not only supply the Nation with its need but also allow it to cash in big time. The Chinese Company which was outsourced by the Malaysians to dig for this ever more valuable resource has made it clear that it isn't willing to go back to resume operation. The reason being the Ogadeni terrorists who killed their personnel along with dozens of Ethiopians. Ethiopia, the Powerhouse of Africa, couldn't safeguard such a vital operation. Whose fault it was is anyone's guess! We have the largest army in Sub Saharan Africa and it is a shame we couldn't protect them. A Nation of 80 millions cannt be at the mercy of a couple of thousand rebels. What suprised me more was the willing of Gaz Prom of Russia which wanted to fill in the Chinese soon after their unwillingness to resume their task in the Region. I am quite sure that the Russians are intimately aware of the potential of Eastern Ethiopia for they were digging deep and wide for a dozen years during the Mengistu Era.the fact they are willing to fill the 'cowardice' chinese tells me that there is even more fossil fuel than was anticipated by the Chinese/Malaysian companies. I am certain that Russians ( with their new found wealth) are more risk-averse than their poorer comrades to the South.
This means that the solution to Ethiopia's predicament massive tab for oil is its unequaviable commitment to make the Ogaden oil/ gaz rich region save and stable for the interested parties to exploit the valuable commodity. What is needed is to make every inch of the this teritorry safe for the oil companies to function without fear for the safety of their personnel.
Ethiopia has a massive army stationed near its border with Eritrea to safeguard the hottly contested, but notso valuable land, near Badame. We are sitting on a ticking time bomb of ever rising fuel cost. We might as well cede Badame, as envisioned by the International Arbritrage, so as to make the area around Ogaden safe. Afterall, it is the Eritreans who are abatting the Ogadeni fighters. Assuming they refrain from doing so, I see no reason for having a significant portion of our Armed Forces facing an illusionary dysfunctional State of Eritrea. Eritrea knows well that if it were to attempt to have a second round incursion it will be a ' Death Wish'.
Moreover, it has come to my attention that the price of Potash has reached $1000 US. This is relevant because Ethiopia's Affar Region is sitting on 180 million tonnes of this valuable commodity which is used as fertilizer and raw material for glass making and countless other products. This Region is infested by Eritrean trained bandits. Despite the fact that Ethiopia has signed an agreement with an Indian company, it will be difficult for them to have a flauless operation given the fact that the area is adjacent to Eritrea. The signing of peace Treaty with Eritrea is a 'must' for both projects to sail through. Pragmatism isn't a sign of weakness but a prudent policy. In conclusion, Badme is the hurdle to our dream to be self sufficient in fossil fuel and Potash production. We will be foolish to let our ' pride' be stumbling block.
If History is a good lesson, numerous Nations has to swallow their pride to have their immediate concern addressed. The Russians ceded valuable land to Finland. So that to buy time. Mind you The Finnish were financing the White Armies fighting the Reds who were a thorn in Lenin's Red Russia. Lenin, even signed a Peace Treaty in 1918 with Germany, even though Germany was on the brink of defeat. So long as the Revolutionary Democrats( ex Communists) were willing to buy time by engaging with ' Arch Foe' Afewerki, folks in Addis won't mind giving peace with Eritrea for the sake of the very existence of the Nation whose sustainablity is being challenged by ever rising fuel price and armed insurgents based in Asmara. For Afewerki won't have an exucse to hold his subjects hostage anymore if Ethiopia was to be forthcoming. Aboveall, it is in Ethiopia's Natioanal Security to counter the burgeoning gaz bill which morethan ever is fueling inflation and poverty in the Hinterland. If Ethiopia is to cede land to Sudan based on Colonial Era Treaties why not honor those same treaties and give Badme to Eritrea. Provided Eritrea pledges to refrain from arming The Shebabs and Ogadenis and Afar separatists who pose clear and present danger. By the Way, Russia did get back much of the Land it ceded to Finland, during the turbulant Revolutionary Days, decades later........
This is an interesting article! Ethiopia is spending close to $2.160 billion US dollars( at $180 million/month) on the import of fuel. All the exports of the Nation won't be able to cover the cost of importing oil, for the total tab for Ethiopian export stands around a billion and a half US dollars. What a dibacle! All our valuable commodities ( coffee, seseame seed etc) cannt even be swapped for oil. if this figures are correct Ethiopia's future is bleak, indeed. Predictions are the price of oil will double soon, meaning our tab will reach 4 billion us dollars soon. It is unsustainable by any stretch of imagination.
The irony is Ethiopia is sitting on major proven Natural gaz deposit in its eastern restive Ogaden region which could not only supply the Nation with its need but also allow it to cash in big time. The Chinese Company which was outsourced by the Malaysians to dig for this ever more valuable resource has made it clear that it isn't willing to go back to resume operation. The reason being the Ogadeni terrorists who killed their personnel along with dozens of Ethiopians. Ethiopia, the Powerhouse of Africa, couldn't safeguard such a vital operation. Whose fault it was is anyone's guess! We have the largest army in Sub Saharan Africa and it is a shame we couldn't protect them. A Nation of 80 millions cannt be at the mercy of a couple of thousand rebels. What suprised me more was the willing of Gaz Prom of Russia which wanted to fill in the Chinese soon after their unwillingness to resume their task in the Region. I am quite sure that the Russians are intimately aware of the potential of Eastern Ethiopia for they were digging deep and wide for a dozen years during the Mengistu Era.the fact they are willing to fill the 'cowardice' chinese tells me that there is even more fossil fuel than was anticipated by the Chinese/Malaysian companies. I am certain that Russians ( with their new found wealth) are more risk-averse than their poorer comrades to the South.
This means that the solution to Ethiopia's predicament massive tab for oil is its unequaviable commitment to make the Ogaden oil/ gaz rich region save and stable for the interested parties to exploit the valuable commodity. What is needed is to make every inch of the this teritorry safe for the oil companies to function without fear for the safety of their personnel.
Ethiopia has a massive army stationed near its border with Eritrea to safeguard the hottly contested, but notso valuable land, near Badame. We are sitting on a ticking time bomb of ever rising fuel cost. We might as well cede Badame, as envisioned by the International Arbritrage, so as to make the area around Ogaden safe. Afterall, it is the Eritreans who are abatting the Ogadeni fighters. Assuming they refrain from doing so, I see no reason for having a significant portion of our Armed Forces facing an illusionary dysfunctional State of Eritrea. Eritrea knows well that if it were to attempt to have a second round incursion it will be a ' Death Wish'.
Moreover, it has come to my attention that the price of Potash has reached $1000 US. This is relevant because Ethiopia's Affar Region is sitting on 180 million tonnes of this valuable commodity which is used as fertilizer and raw material for glass making and countless other products. This Region is infested by Eritrean trained bandits. Despite the fact that Ethiopia has signed an agreement with an Indian company, it will be difficult for them to have a flauless operation given the fact that the area is adjacent to Eritrea. The signing of peace Treaty with Eritrea is a 'must' for both projects to sail through. Pragmatism isn't a sign of weakness but a prudent policy. In conclusion, Badme is the hurdle to our dream to be self sufficient in fossil fuel and Potash production. We will be foolish to let our ' pride' be stumbling block.
If History is a good lesson, numerous Nations has to swallow their pride to have their immediate concern addressed. The Russians ceded valuable land to Finland. So that to buy time. Mind you The Finnish were financing the White Armies fighting the Reds who were a thorn in Lenin's Red Russia. Lenin, even signed a Peace Treaty in 1918 with Germany, even though Germany was on the brink of defeat. So long as the Revolutionary Democrats( ex Communists) were willing to buy time by engaging with ' Arch Foe' Afewerki, folks in Addis won't mind giving peace with Eritrea for the sake of the very existence of the Nation whose sustainablity is being challenged by ever rising fuel price and armed insurgents based in Asmara. For Afewerki won't have an exucse to hold his subjects hostage anymore if Ethiopia was to be forthcoming. Aboveall, it is in Ethiopia's Natioanal Security to counter the burgeoning gaz bill which morethan ever is fueling inflation and poverty in the Hinterland. If Ethiopia is to cede land to Sudan based on Colonial Era Treaties why not honor those same treaties and give Badme to Eritrea. Provided Eritrea pledges to refrain from arming The Shebabs and Ogadenis and Afar separatists who pose clear and present danger. By the Way, Russia did get back much of the Land it cedes to Finland decades later........