Ethiopia: Robust measures parallel to the traditional to fight crony capitalism

October 1, 2018 Africa , Opinion , OPINION/NEWS

Reuters photo

 

By

Alem Hailu G/Kristos

 

 

Ethiopia boasts a double digit economic growth, while citizens are complaining about inflation and a living condition that goes downhill. How could the country address this conundrum and tame inflation? What must the parameters be to measure economic growth? Are infrastructural development and direct foreign investment that are currently apparent in Ethiopia adequate?

 

Associate professor Dr Joachim Persoon is a resident of Addis. He has been crisscrossing Ethiopia for research purposes and I approached him for his observations on the aforementioned issues.

 

He said that “The government is right in that there is a considerable economic growth. But the growth is from a very low level and it is not having a strong impact on the life of people in such a way they feel their life is changing. It is not keeping up with inflation. Yes there is foreign investment. There is infrastructural development.”

 

With the aforementioned questions The Ethiopian Herald approached economist Abdi Yuya Ahmed, PHD in Innovative Economics, Adama Science and Technology University.

 

He said, “Yes, despite slight differences between the government and international institutions regarding the data, Ethiopia has been registering double digit growth over the last decade and has been labeled as one of the fastest growing countries.”

 

He added, it is not unlikely that growth would co-exist with difficult living conditions for citizens.

 

“True, there is high inflation and poverty among the people, while the government is touting growth. The issue is that economic growth (GDP or GNP) only refers to increase in the monetary value of goods and services produced in the country.”

 

He further said it does not include distribution of the income among different parts of society. The growth talked about has mainly been attributed to the role of public investment in infrastructure and increase in private investment to some extent.

 

He noted “There could be some people or businesses which have grown very high, while the opposite exists among the majority who are getting poorer and poorer given the increasing cost of life.”

 

Regarding inflation he noted that theoretically inflation is a common phenomenon when economy is growing very fast. The issue is that of managing inflation at optimal level rather than absolute control.

 

According to him, the main tools of reducing inflation are those based on monetary and fiscal policies. Regarding tools of monetary policy, the government may decrease money supply using tools like debt control and interest rates.

 

Increasing interest rates on bonds and money borrowed from banks will make credit costlier thereby decreasing money supply. This would, in fact, reduce economic growth. The other way of reducing inflation is using tools of fiscal policy, he stressed.

 

Increasing income tax or decreasing government spending will help reduce aggregate demand, which in turn will decrease growth and hence leads to less demand pull inflation, according to him.

 

As he puts it, the other important tool, yet with long term effect, is using supply side policies. This includes privatization, improving ease of doing business, building infrastructure and reducing cost of trading and so on. These measures will help reduce the cost of production and hence increase the supply of consumption goods which would ultimately reduce inflation.

 

He lastly noted, “it is good to note that Ethiopia’s current situation requires looking the problem of inflation and economic marginalization of the majority from the political economy perspectives.”

 

Problems with the political settlement over the last two decades had resulted in the development of what some economists call crony capitalism. Now we are at the point that few businesses with overwhelming business networks are capable of distorting the market system and creating artificial scarcity which fuels inflation. “Therefore, beyond the traditional measures I mentioned earlier, the government needs to take robust measures to build institutional and legal orders towards fair competitive environment that would help halt the inflationary tendencies.”

 

Concerning the conundrum regarding the country’s much talked about growth and living conditions, Abdi said “However, the majority seems to understand the development as if it is a fallacious one, since it has not created much employment and has failed to improve the life of the poor. There are some who understand development in terms of visible infrastructure and buildings. The problem emanates from mixing the meaning of growth with development.”

 

Development is much broader than growth. Growth is only a single element of development. Development should include social and political dimensions in addition to the economic dimensions coupled with the distributional aspects.

 

Given economic development is a broad concept which includes both economic and non-economic aspects, economic development should reflect economic, social and institutional mechanisms that are necessary for bringing large scale improvements in the levels of living of the people.

 

Pertaining to this, some economists include the role of poverty reduction; provision of improved basic needs, goods and services; diminution of inequalities in income distribution in the definition of economic development which can be achieved by increasing the rate of production and employment.

 

Dr. Joachim noted, “The way forward is to be realistic, not to use statistics for propagating purposes, which supports a certain government’s narrative. What must be done is to try to understand what is really going on. Trying to nurture and develop proper growth which will benefit everybody and impact the life of the ordinary people must be made a point. What is happening now is a certain percentage of the population is getting richer and richer, while most of the population are getting poorer. The IMF and World Bank people have their own criteria and way of evaluating things. They have to conform to certain basic principles in order to keep their system working.”

 

According to him, the illegal migration of many daring risks of crossing seas and deserts shows there is a problem. Dr Abiy Ahmed’s willingness to listen to the people and engage citizens in peaceful dialogues could slowly but surely solve the problem.

 

 

 

 

Alem Hailu G/Kristos

A published poet, novelist, editor, translator of masterpieces, literary critic, playwright and journalist from Ethiopia. M.A holder in literature, Addis Ababa University.

Looking for a traditional publisher of a collection of poems. My novel: ‘Hope from the debris of hopelessness’.

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1 Comment

  1. mehari October 01, at 11:03

    it is really an interesting story which concern on the economy indicaters with in the context of Ethiopia economy developments . it implies that quantitative measurements is not only an indicater of the country development but also huamn development index should be taken into consideration. In other words, per capita income and improving the living standard of the people. the writer, Alem, put on the paper striking issues which are the questions raised by the mind sate of scholars.

    Reply

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