BY MISGANAW ASNAKE
Due to religious and cultural factors, Ethiopians has a strong habit of spending big during holidays. It is a custom that Ethiopian households spend a significant portion of their savings particularly during Islamic and Christian holidays. The months of December and January are months when the Ethiopian Christian faithful celebrate two of the most religious holidays of Genna (The Birth of Jesus Christ) and Epiphany (The Baptism of Jesus Christ). While saving and investment are major macro-economic determinants, it is appropriate to ask whether the excessive spending during these holidays good or bad to the economy?
The Ethiopian Herald approached economists and bankers to share their views regarding the habit of spending big during holidays and its impact on the economy. It also raised a question regarding why people risk their saving to excessively spend to celebrate holidays and take the risk of bankruptcy. Is it a good or bad thing to the economy and what is the solution if its impact is the latter? And what should be the role of banks and financial institutions in this regard?
Yidnekachew is a banker at Awash Bank, one of the major private banks in the country. He said that during holidays, people have a strong tendency to withdraw their savings from the banks and this has a strong impact in reducing the amount of saving deposits in banks and other financial institutions.
As to him, this has no significant impact on the national economy as the cash withdrawn from the banks and spend on holiday consumption will end up in the pocket of another person, who is a businessman, and this might at the end of the day end up in the banks.
On the other hand, the increase in consumption will have a negative impact on the community, as most of the time; it will result in a significant increase in the price of basic commodities. Hence, the money that could have been used efficiently in another time will be spent inefficiently.
“Therefore, generally speaking, it will not have a significant impact on the banks as it will only result in the transfer of money from the pocket of one person to the other which at the end of the day end up in the banks,” he said. But to control the price hike on basic commodities, the government should play a regulatory role during these times, he advises.
Zewudu Berhanu is an operation officer at the same bank. He said huge withdrawal of cash is common among Ethiopians during holidays. “As to me, the increase in cash withdrawal will have an impact on the macro-economy by reducing the saving rate, and also investment.
When customers withdrawal cash from the banks, Ceteris paribus, it will result in the reduction of saving deposits. This will have an impact on the banks’ ability to provide loan. This will also return the economy to the previous level of savings, Zewudu said.
“When we see the impact at an individual level on the community, unplanned expenditures will always have undesirable consequences,” he said adding “Particularly, after the passing of the holyday, households struggle to get back to the previous level of resilience to economic shocks.”
On the contrary, the merchants are more beneficial because the price of the same commodities are higher than normal circumstances and enable them to make better profits. “They don’t also spend a lot of money on the market as they would be occupied with business during these times. And the well-planned ones will be in a better position to expand their business in the future,” he said.
“For me,” Zewudu said “it would be better for the national economy if people prefer to withdraw money at the right time when the price of commodities is stable. This will have an impact on the economy in terms of efficiency.”
He also advises people not to withdraw a lot of cash during holidays when prices are high as it would have a significant impact on their future saving and willingness to save having a purpose in mind.” This kind of spending harms society’s capacity to save and plan to improve their lives in the future in a meaningful manner.”
As the economy and hence life have become competitive these days, the society shouldn’t give special consideration for the holiday spending, he added. Hence, they should focus on bringing meaningful change in their economic capacity and this will have good outcomes for the economy at the national level.
For his part, Professor Alemayehu Geda, Economics Lecturer at Addis Ababa University stated that generally speaking, the fact that people withdraw cash from the banks and spend it on commodities will have a positive impact on the economy.
“For instance, if we take the western countries, holidays spending plays a huge role in stimulating the economy,” Alemayehu said. “Holiyday consumption will result in increasing the aggregate demand and as result will stimulate the national economy.”
“But in our case, the supply would not be stimulated due to the increase in demand and as a result, the price of basic commodities such as food items would rise. This would have an impact on the overall food security. This has been observed in basic food commodities such as Teff, tomato and onion,” he said.
On the other hand, it is profitable for the businesspersons, the professor said. They make a lot of profit out of the spending boom, he added. But on the consumers’ side, it has negative consequences due to two major factors. “First it will increase the price of consumer goods and consumers incur a loss as compared to normal times. Second, it will reduce their savings and will take time to recover and return to the previous level of saving. This vicious circle continues when another holiday comes,” he added.
What the government should do in this time is to establish a market that is self-regulatory to prevent the increase in price. “I used to live in London and I never witnessed the increase in the price of food items such as milk or bread due to holidays. The price of such food items is always stable.”
Hence it is up to the consumers to prevent the negative impact since the businesspersons always welcome price increment as long as the consumers are willing to pay the set price. Because their major goal is profit maximization, he stressed.
Other than that the government couldn’t do anything to regulate the large number of sellers which might reach up to 200,000. But it can supply basic goods like teff, beans, lentils and milk and regulate them to be sold at the profit margin of not more than 20 to 30 percent through cooperatives in each kebeles. That would stabilize the market and avert the negative impact on the economy.
The Ethiopian Herald 16 January 2021
