Various measures have been undertaken to sustain the pace of Ethiopian economic growth and political reform geared to ensure economic development, good governance and protection of human rights in the country.
Together with the political reform, Experts in the field urge statesmen to materialize the reforms in the economic sector. According to Costentinos Berhe, Economist at Addis Ababa University, politics alone is nothing and senseless without its skeleton – economy.
In due so, following the political reform flourished in the country, there has also been devotion to simultaneously erect the economic sector. As to Dr. Costentinos, recently the country’s economy is in a driving signal regarding measurements of GDP and other international econometric factors.
To sustain this, the incumbent has been playing its part. For instance, recently a billion dollar has been obtained from the World Bank. Besides, alternative ways have been devised for the completion of infant projects nationwide. At the same time, activities are being carried out to curb the scarcity of foreign currency, which has been paralyzing the private sector for years. Zemedeneh Nigatu, Economist and Chairperson of Fairfax Africa shares the ideas forwarded by Costentinos.
As to him, a committee dawned from 10 Ministries has been formed with the duties of deciding how business is effective in Ethiopia and to put possible solution against barriers observed in the chores. This can be taken as an instance of governments’ dedication to giving due emphasis to the economic sector. Zemedeneh further explained that the situation will have great importance for investors who have business activities in Ethiopia.
On the other hand, the measure which has been taken to privatize certain public enterprises should be considered a great move. The intention to fully or partially privatize public enterprises like Telecommunications, Electric Power will have great importance to generate financial capacity and create technological competency. Moreover, when the private sector becomes stronger, there will be a great demand for investment capital.
This, in turn, encourages stock capital in the country. Since the Ethiopian economy is the third largest among in Sub Sahara Africa, continuous economic reforms have to be undertaken carefully to cope with the change. Dr. Costentinos for his part said, besides keeping the momentum of good reform practices, some tasks should be given due emphasis to handle the economic crisis. One is, resolving the shortage of foreign currency and capital deficit.
For instance, this can be done through gaining foreign currency in the form of loan or donation from citizens residing out of Ethiopia or the export market). As the capital inflow is a means of solving capital shortcomings, the government should strive to improve it. The country needs to implement financial reform as well. Such reform measures would not be taken recklessly; it should rather take place by organizing various platforms, taking best practices of others as well as perusing its cost-benefit analysis.
In addition, capitalizing on the journey of privatization which was promised earlier and working for its effective implementation is critically important. But, this does not mean that the finance and telecom institutions be simply liberalized or sold. There should be a regulatory body that will be assigned to monitor the task. When these institutions are sold in such a way, the buyer is not expected to invest in the country and doesn’t matter where he/she resides in. What is important here is the capital.
This creates an opportunity not only for the nation’s infrastructural development but also brings about a chance to improve the overall institutional setup. Similarly, as it is a factor aggravating the shortage of foreign currency, it is also important to adjust the balance of payment deficit. As to Zemedeneh, besides the reform activities that have been carried out so far, the financial sector especially the bank subsector needs reform.
Because there are 16 small private banks in Ethiopia and despite their number, they cannot support the growing economy due to their limited capacity. Thus, merging all the 16 banks based on their will and brings them to four or five giant banks should be put as one alternative. In this case, they could be ready to risk and support the private sector. In their current status, except for Commercial Bank, the others would not have opportunities in global business; they are even smaller than African Banks.
Within 25 years, they have only generated 30 billion Birr. So, it is better to focus on quality than quantity by enabling them to come out of the collateral loan system and encouraging them to rehearse risk-taking behavior are critical. Zemdeneh also stated that financial management should go together with the economy.
For this to happen, modernizing the system by taking a lesson from international institutions and adapting it to local contexts is imperative. The country’s GDP has increased significantly over the past decade. Thus, it is difficult to say the strategies of the past could be effective today. The National Bank should evaluate and rectify the supply of foreign currency.
For instance, some people open up a ten million Birr Letter of Credit to buy a car while drug importers are facing challenges related to foreign currency. The limited foreign currency gained from exports should not be spent to import luxuries products that would not add value to the economy. It is also important to encourage the production of goods for export and domestic market based on local capacity.
Thus, implementing a working system and taking policy measures that discourage importers and promote import substitute goods is decisive.
Editor’s note: This piece is translated from the Amharic daily Addis Zemen
The Ethiopian Herald, March 14/2019
BY LAKACHEW ATINAFU
