BY TEKLEBIRHAN GEBREMICHAEL
Introduction
I have observed with animated interest NBE’s (National Bank of Ethiopia’s) frantic efforts to curb illegal money transfers and all other illicit financial transactions through the issuance of restrictive directives, but, alas, practically to no avail.
Why? Because the problems are systemic arising from endemic country-wide corruption and fraudulent economic and financial practices. So, the solution lies not in ad hoc restrictive directives such as those being put out by the NBE but in drastic political measures to root out at least the basic causes and manifestations of corruption in the economy.
The class structure of Ethiopia’s economy
Under the Derg regime, extensive private–sector wealth creation was severely restricted. However, private–sector businesspersons, merchants, traders and middlemen made the richest class and they could hardly refrain from exploiting opportunities and legal loopholes to augment their wealth, including through creating artificial shortages by hoarding goods and taking advantage of price differentials between the state-controlled and free markets then co-existing in the economy. By contrast, top government officials and bureaucrats including President Mengistu himself led an ostensibly austere life.
Under the TPLF/EPRDF regime, Ethiopia’s class structure changed drastically. The victors of the prolonged civil war formed the new political and economic elites.
Political leaders, military officers and their supporters controlled the land, other natural resources, public enterprises, the banking system, budgetary resources, the foreign exchange, etc. of the country and disposed of them as they pleased. In short, the entire economy of the country became the spoils of war and it was mercilessly ransacked.
The end result of this process is that it is not only the political elite and the military top brass that became corrupt but also the business and financial elite led by the TPLF-owned EFFORT. Over thirty years, the culture of corruption has become pervasive reaching down to the lowest levels of public administration and economic management.
That is why many observers, including foreign as well as local, suggest that what is needed in Ethiopia are not minimalist reform measures but rather drastic changes.
The need to differentiate between corrupt value creators and parasitic government officials
In terms of value creation, there is a world of difference between practicing civil engineers who put up imposing high–rise buildings worth tens of millions of Birr and government officials who do practically nothing all day long other than warming their chairs but pocket millions of Birr in all sorts of bribes and kickbacks.
The civil engineers may have benefited from official corruption through non– competitive work contracts and bank credit obtained on orders from the higher–ups (so–called “directed credit”), but compared to the corrupt government officials, they are head and shoulders above the latter in terms of value creation.
So, when it comes to meting out justice, do not, for God’s sake, interfere with the engineering and construction work of the civil engineers, but by all means make them pay any tax arrears they may owe to the government or order them to repay any bank loans with interest they may still have outstanding.
On the other hand, as for the corrupt government officials, dismiss them from work and confiscate their ill-gotten gains and put them in jail! Period! However, care should be taken in the case of apparently irreplaceable top military officers.
As long as they are fully committed to die for the territorial integrity of Ethiopia, their case may be seen in the light of their readiness for self-sacrifice. Legally speaking, these considerations may be regarded as extenuating circumstances.
Political measures not NBE’s regulations are the solutions
NBE’s attempt to launch regulatory ripples in the sea of country–wide corruption appears to have stirred a considerable amount of uproar particularly in the business community.
What are the recent directives issued by the NBE with the express purpose of curbing illegal money transfers and other forms of money laundering? Here are three of them as shown in “Reporter,” Jan 19, 2021.
- No more than five account-to-account money transfers can be made per week;
- No individual can make a cash withdrawal of more than 50,000 Birr per day from any bank;
- No enterprise can make a cash withdrawal of more than 75,000 per day from any bank.
Assume that the top political leadership, the government bureaucracy, the business community and the entire Ethiopian society are in one way or another, directly or indirectly, interconnected in a host of nation-wide corruption networks; then try to curb illegal money transfers by limiting the number of such transfers to only five per week. As is well-known, account–to-account cash transfers may be made as a result of the following major transactions:
- Outright gifts
- As counterparts to deliveries of real goods and services;
- Debt payments; etc.
Hence, tens of such transfers per day by a single individual may be the results of bona fide economic and financial transactions; which means curbing them would negatively affect both domestic and foreign trade, which in turn slows down production and the level of economic activity in general. Similar problems would arise from the 25,000 and 75,000 Birr cash withdrawal limits per day for individual and enterprises, respectively.
With a very high cumulative inflation over the last thirty years and with the vast majority of the Ethiopian people not having bank accounts, for example, cash purchases and pre–treatment hospital cash deposits often exceed the prescribed cash withdrawal limits, which means such transactions would be impeded by the NBE’s misguided piecemeal regulations.
What then should be done?
That is a 3–trillion Birr question! But it must be confronted head on. It is a good thing that the core TPLF Mafia group within the wider TPLF/EPRDF syndicate has been decimated, but the wider corruption network of EPRDF still holds sway over the entire Ethiopian society.
Well-known EPRDF Mafia dons are still in power working the widespread corruption networks throughout the country. It is a sad commentary on the current reformist agenda that key economic and financial
institutions are still being run by former TPLF/EPRDF bigwigs. Hence, Ethiopia’s economy is still a patronage system based on a partial distribution and re–distribution of key resources including land, housing, government employment, bank credit, foreign exchange, foreign aid, budgetary resources, etc.
To begin with, no lasting solutions can be found by issuing ad hoc and piecemeal regulations and directives such as those recently issued by the NBE and other institutions. In that spirit, the following general recommendations are forwarded:
- The income and wealth of top civilian government officials should be immediately made public by the Ethics and Anti –Corruption Commission;
- The same should be done with respect to middle–level government officials in the government bureaucracy;
- EFFORT should be nationalized and run by government – appointed managers with a view to continuing its productive and commercial activities;
- Business- persons and enterprises in all economic and financial sectors of the economy should be legally obligated to pay and repay any outstanding tax arrears, bank loans and credits and any other outstanding financial obligations.
Concluding remarks
It is ironic that the NBE, which has itself
been so flagrantly derelict in its own duties and obligations, should now attempt to penalize presumed offenders by issuing self-defeating ad hoc and piecemeal regulations and directives. It should instead first look in the mirror and see its own monumental errors which have resulted in the price of the US dollar hitting an all–time high of 55 Birr per USD and a cumulative inflation rate of over 8,000 percent!
The NBE is responsible for the impoverishment of millions of Ethiopians including pensioners, fixed–income government employees and millions of unemployed Ethiopians as a result of its failure in its statutory obligation to control inflation and stabilize the Birr/USD exchange rate! NBE’s latest misguided limits on money transfers and cash withdrawals would only make the already stuttering economy even worse!
We should realize that illegal money transfers are actually embedded in the thousands of legal financial transactions effected every day, which means that any curb on the totality of money transfers hurts the economy much more than it does the illicit financial transfers per se.
The Ethiopian Herald February 2/2021
