Although Ethiopia’s economy has been tested by international problems and internal conflicts, documents indicate that its growth is in a better stance. For this reason, the government believes that the implementation of the homegrown economic reforms will ensure the continuity of the country’s economic growth.
Currently, Ethiopia has entered into the implementation of a comprehensive macroeconomic reform policy. Molla Alemayheu (PhD), a researcher at the Ethiopian Economics Association, said that Ethiopia’s economy should be carefully considered based on its previous experience. As the macroeconomic reform can bring unintended problems as well as its benefits, it requires regular inspection and monitoring to improve it.
The macroeconomic reform mainly supports the business sector; in particular, it will facilitate and improve foreign trade. Therefore, domestic and foreign investors engaged in foreign trade will be encouraged. In particular, it will be a great potential in helping to attract many foreign investors to invest in the country.
When the macro economy comes into play, it is necessary to look at the country’s economic structure. If we look at countries that have made their foreign exchange market-oriented, some are successful and some are not. For example, it can be remembered that Sudan has made similar reforms some time ago. However, a terrible situation has arisen at that time. Earlier, one American Dollar was exchanged for 55 Sudanese Dollars; it went up to 300 Sudanese Dollars at once. Then, a serious crisis has arisen. Ethiopia will not be different from this, so it is necessary to carefully consider the economic structure of the country.
“Of course, for a business-oriented and developed economy, it is very good to let the foreign currency lead the market,” Dr. Molla said. The amendment has several advantages. When the foreign exchange is driven by the market, it facilitates exports and makes the foreign trade more competitive and creates better potential. This has two advantages.
One is that exporters earn better profits by exporting their products to foreign markets based on domestic prices. Second, they create a streamlined business relationship by having access to the Dollar itself. The amendment has taken this into consideration and is a step taken to facilitate export trade and reduce the current deficit, he said.
However, the economy in Ethiopia is import-oriented, or Ethiopia’s import from abroad is four times more than it exports. The current reforms to such an economy may be counterproductive. It could also make the cost of living worse since the economy is based on domestic trade. Therefore, the government is required to carefully follow up on related issues and work to avoid weighing the advantages and disadvantages. That is to say, it should regularly review the reform policy and take corrective action.
In addition to facilitating exports, the benefit is preventing illegal trade. Dr. Molla said. If the foreign currency can be manipulated by the market, it means that the currency will be the same or close to the normal market. If this is the case, no one will have the motivation to engage in illegal trade. Therefore, there is a high possibility that illegal trade will disappear.
At this time, the government can properly control the economy and control expenditure, revenue, products and capital for there is an opportunity to reduce illegal distribution on a large scale. Since the government is aware of every movement, it enables it to set the policy direction it wants to speed up or slow down the movement.
Dr. Molla pointed out that although the foreign currency has its share in the cost of living, it is necessary to identify the main cause of the inflation in the country so that the cost of living does not worsen. However, if the government can provide Dollars, the cost of living may not increase. But the problem is that if the government cannot supply the Dollar and it still depends on the individuals, the inflation will have a very high negative impact. If the government is able to implement short-term and long-term strategies by making subsidies and changing the form and content of the subsidies by periodically evaluating them, then the steps being taken now are encouraging.
Equals to the fact that the foreign currency is controlled by the market has a positive effect on the business, it has also negative effect. While mentioning his concerns, he said that the country’s economy will be exposed to more harm than good. The main reason is that the economy is underdeveloped and dependent on income generation.
Dr. Molla said, “I don’t believe that the government has completely liberalized the business sector to follow the free market.” It would be better if it was done at every level instead. This means that if the business sector is gradually made to follow the free market at every level, primarily, the economy will adapt. But now, in view of its newness, it may face operational and other problems. For this, the government is required to take various precautions. Apart from the government, experts and others who are involved in the economy should be careful by doing their own part.
“As public participation is important, it has the potential to make a country’s economy worse or better,” Dr. Molla said. There are three elements: the government, the investors and the society. When the society is a part; it is both a seller and a buyer. The government is both a seller and a buyer. And the investor is the seller. Therefore, the relaxation of these elements will make the economy better. In particular, there should be strong trust between these three parties and if all parties contribute to the economy according to their abilities and knowledge, it is possible to create a better economy.
Ermias Abera (PhD) is an auditor, financial consultant and teacher. According to him, any reform has positive effects as well as negative effects. However, the importance of macroeconomic reforms as a country is great. It seems that there will be something uncomfortable for the business community because it is out of the ordinary, but it is important and necessary for the improvement of the national economy.
Since the macroeconomic reform is based on foreign exchange, it seems that it will be a challenge rather than a short-term solution, especially for the business community, but it will solve the shortage of foreign currency and management problems in the long run. Most of the products in the country’s trade system are imported. This has caused a shortage of foreign currency in the country.
In addition to more imported products than exported products in the country, most people use foreign currency for basic and necessary items as well as for luxurious items. However, the government has the possibility to use the foreign currency considering the needs of the mass.
Mainly, because the transaction is based on foreign currency, it is vulnerable to black market. Macroeconomic reforms are also believed to help control illegal trade. For this reason, the government should mainly prevent the illegal trade in the economic structure, Dr. Ermias said. He believes that the macroeconomic reform is important as a country. The reform can achieve its goal only when the government is able to control the illegal activities that have progressed in the structure. As the amendment is a policy, it is subject to change from time to time. Therefore, the benefits of macroeconomic reforms will depend on the government’s commitment.
Dr. Ermias pointed out that one of the macro economic reforms character is appropriate and long overdue for foreign currency to be managed by the market. The gap between the regular market and the black market is wide and will take time to bridge. It is necessary to think about the distance that the foreign currency will be led by the market. For example, one dollar has been traded at 120 Birr in the black market and 57 Birr in the bank. Therefore, to adjust the distance between this takes time and requires patience. Furthermore, foreign exchange is an international and highly sensitive issue that cannot be left to the market.
However, beyond the current crisis caused by the reform, the national benefit that will come in the process is significant. The permanent solution is to take a strong stand on the implementation of the policy reform and increase the control capacity, he said.
BY BACHA ZEWDIE
THE ETHIOPIAN HERALD SUNDAY EDITION 4 AUGUST 2024
