There is presently a debate going on not in academic circles but among individual economists as to the serious problems the Ethiopian economy is facing. Economic issues are often pushed to the background of the policy debates because political and security issues are the dominant concerns of both the state and society. However politics generally operates on the basis of economic realities and the two tend to feed on another. This is often forgotten or overlooked by policy makers.
It is clear that unemployment is one of the causes of the present security concern and the social conflicts that are rocking a good part of the country as unemployed youth tend to take advantage of any political opportunity to vent their anger by hitting the streets and by creating mayhem there. Economic and politics are mutually complementary as recent events proved. The street violence in turn led to economic breakdown in areas hardest hit by the violence.
So, ignoring economic issues by overemphasizing political ones would not only be like seeing the trees and not the forest as a familiar adage has it. Whether the Ethiopian economy is in recession or facing a crisis or as some commentators say, is only the manifestation of economic imbalance may be irrelevant or beyond the point. As Shakespeare is often quoted as saying, whatever name you may call it the rose remains a rose. By whatever name you may call the Ethiopian economy the fact remains that it is in deep trouble although political issues often tend to make us forget the underlying malaise and/or steal the show.
For these and other reasons, the Ethiopian economy is not something that can reduced as either an economy in crisis or as an economy in free fall or suffering from sector-based imbalances. The Ethiopian economy is rather an economy that shows some of these characteristics or problems in combination and does not fit into a single definition that would be a reductionist and simplistic approach.
Moreover the current problems in the Ethiopian economy should also be seen against the background of the reform program as an economy in transition that it is also suffering from the disruptions or deregulation or possible mismanagement of the economic transition to which policy makers give scant attention. The Ethiopian economy is also affected by a hangover of the political disruptions of the last two or three years leading to low rural productivity, capital flight and grand corruption by the political elites. It is also clear that all these factors should be taken into consideration before we try to stick a name to the ongoing situation as a crisis or as an economy that has lost its balance.
Irrespective of the qualifying epithets, the Ethiopian economy is clearly in problem. Some people call this an economic crisis. Others are calling it the manifestation of economic imbalance. There are also other qualifying words. Words like economic cooling down, recession or economy in doldrums may be some of the words that are often used to describe the present situation. What are the major indicators that are characterize the economy? They are demand-pull inflation, rising unemployment, foreign trade gaps, hard currency credit crunch, to name but a few of them.
However, the Ethiopian economy is not in free fall as Joseph Stieglitz would say in the case of the US economy in the wake of the 2008 Great Recession. The US has the greatest economy on earth. Ethiopia is a poor man’s economy that is struggling to survive the waves of pushes and pulls that are threatening its small engine. Any comparison between the two economies would be farfetched. Yet, in the case of crisis the two share some of the common characteristics.
In his 2010 book entitled, “Free Fall” Stieglitz characterized the 2008 US crisis as caused by “A deregulated market low interest rates, awash in liquidity and global real estate bubble, and skyrocketing subprime lending were a toxic combination.” This description of the US recession in no way resembles the economic problem Ethiopia is now going through. Stieglitz went on to mention the other features of the US recession by mentioning “fiscal and trade deficit and the corresponding accumulation in china of huge reserve of dollars-an unbalanced global economy” as factors exacerbating the recession.
Some of these factors are also adversely affecting the Ethiopian economy such as trade deficit, accumulated foreign debt and an imbalance global economy. These are parts of the problem but they are not all of the problem faced by the Ethiopian economy. There are also sector-based problems that tend to exacerbate the general problems of the economy. to take one example, the agricultural sector is still caught in permanent state of paralysis as it has failed to modernize, boost productivity and meet market demands and pushed millions into a situation of chronic hunger and/or malnutrition.
The agricultural failure is also exacerbating the galloping food price rises and compounding rural and urban unemployment. There is actually a hidden hunger in the country, hidden not from the eyes and ears of the people as it was the case back in 1974 on the eve of the Ethiopian revolution. It is hidden by the superficial glamour of the middle classes that profited from the economic boom of the last ten years or so. It is hidden from view by the patience and tolerance of the working classes that are enduring the bad times for lack of a medium through which they can express their grievances.
The ethnically-skewed and emotionally charged political atmosphere and the witch-hunt that is often accompanying it are not obviously conducive for pro-labor activism. Ideological illusions such as industrial peace and poor bargaining power as well as nationalist political delusions are also compounding the miseries of the working classes that are the least beneficiaries of the economic reforms.
The fact that the state sector is still the dominant force in the overall economy and the weakening of the private sector through excessive taxation, acute hard currency shortage and the attendant credit crunch make a bad situation worse. Economic challenges tend to exacerbate already existing problems. As Joseph Stieglitz argues in his other book entitled ”The Price of Inequality”, the 2008 recession in America has compounded the classes differences and led to serious income inequalities ore than the from which the poor, rather than the rich saw their dreams and hopes evaporating into thin air.
Some economists are keen to indicate that rent seeking in Ethiopia has led to grand corruption and the enrichment of the few at the cost of the majority and this problem has not yet properly addressed in time. The say government policy is largely responsible for not taking serious action against rent seeking. Stieglitz says that, “Much of the inequality that exists today is a result of government policy, both what the government does and what it does not.” In our case, the leniency shown by the government in the face of rent seeking both at federal and regional levels may be at the root of the problem for which the people are forced to pay a high price in the form food insecurity, income inequality and growing poverty.
This process of growing income inequalities is inevitable when the economy goes through roller-coaster of massive unemployment, growing inflation, trade deficit and industrial stagnation caused by credit crunch. The only viable employer remains the state through its massive construction projects and housing programs while the less privileged classes carry the burdens of all the economic problems.
Some people are looking at the privatization program currently on track as a kind of panacea against the economic ills we tried to indicate above. However, the privatization program, although relevant and timely, is bound to be slow to be implemented and still slower to generate the expected advantages. Privatization is a big jump into the unknown and a gamble as well as a calculated risk taking. It may prove a remedy or another burden.
As the first privatization of the 1990s transition proved a mixed bag of overall failure and a limited success, so might the ongoing privatization which is being pushed in the midst of a global economy that is in turmoil. The first privatization enjoyed
some of the advantages of World Bank and IMF sponsorships as it was undertaken under strict supervision. It had some economic incentives, such as loans and credits and specialized and expert advice given to encourage the policy. However, the current privatization has no ready-made incentives to benefit from and has to stand on its own.
The ongoing debate whether the Ethiopian economy is in deep crisis or whether it is suffering from some form of imbalance may not automatically produce results or strong arguments that would facilitate the search for solutions. The economists who argue in favor of a crisis and the central bank authorities who deny a crisis and emphasize on sector imbalance that can be rectified easily, are right in their own respective ways. Semantic niceties aside economic imbalance can be seen as part and parcel of an economic crisis while a crisis can be seen as a serious economic imbalance.
The urgent need is to combine efforts to find a way out of the economic problem instead of resorting to hair splitting theoretical exercises. Whether the diagnosis is a microeconomic imbalance or a structural crisis, the way forward should be focused on creating jobs for millions of youths in rural and urban areas, subduing the galloping horse of inflation and providing food for the millions of hungry, malnourished or undernourished Ethiopians. Men must eat first before they engage in any politics as an old political wisdom has it. They cannot make politics on empty stomachs and if they try to do it they do it in a mood of anger, disillusionment or hopelessness that is aggravating the situation.
Politicians often prefer to avoid economic debate and tend to stick to stereotyped, and hackneyed or sterile vociferations about ethnicity and nationalism because they are ill-prepared for it or because it does not serve their nationalist or ethnic agendas.
Thus, our economists and academicians should wake up and take the debate to a higher level instead of locking themselves up in fruitless politicking that make the current situation even worse. We should not treat the economic problems as a marginal concern or a part time exercise. Government is expected to set up a special task force composed of the most talented economists on the land and advise it on how to take emergency measures to stem the tide of some of the most pressing problems.
The Ethiopian Herald Sunday Edition 24 November 2019
BY MULUGETA GUDETA
