BY DANIEL ALEMAYEHU
It is not gone too long to see how things have been changed in this short time. There have been times which the proud Ethiopians were competent enough in the stages of the world and how Ethiopia was strong and bold in the eyes of the world. As it is well known by almost all Ethiopians, this all went to madness during the past 40 or 50 years.
It is true that Ethiopia has several resources, both natural and historical that can generate plenty of economic benefits so that the country has been collecting revenues from these resources. However, the country is still in big economic trouble regarding foreign currency and price inflation.
It should be learnt that whenever people talk about economic growth, everyone must be sure that foreign currency exchange rate is the area to think about because perceiving these two ideas separately is impossible and even can be giving cold shoulder to the truth.
The term economic growth can be defined in many ways as an increment in the production of economic goods and services, compared from one period of time to another. It focuses on Gross National Products (GNP) and Gross Domestic Product (GDP). According to United Nations Development Program (UNDP), Ethiopia has registered remarkable economic performance with annual growth averaging 10.9 percent over the past ten years. This is double the Sub Sahara Africa and triples the world average growths over this period and has led to Ethiopia being rated as one of the fastest growing economies in the world.
The other term that is taken to account is inflation. According to the journal by Mamo Esayas and Abel Wudeneh, Lecturers at Wolayita Sodo University, it is sustained rise in general price level of goods and services. The definition of inflation concerns not increase in price of a particular product for a short period of time. Inflation is bad not because people hate it but because of its serious economic and social effects.
It adversely affects the real income of people especially of those fixed income earners and redistributes income from one group to the other group and creates income inequality. Inflation also hinders Foreign Direct Investment (FDI) because it raises cost of materials and inputs and makes FDI less profitable. Uncertainty about prices and increase in production costs also reduce production. Inflation also results in reduction of exports because of decrease in production and expensiveness of domestically produced goods in international market.
Based on the article by Tamrat Kahssay from Kebridahar University, there are different hypothesis as to the cause of inflation. According to the structuralists, inflation is attributed to the structure of the developing countries’ economy. According to monetarist, the expansion of money supply beyond the growth of real output is cause of inflation. Inflation may also result from either increase in aggregate demand or a decrease in aggregate supply, these two sources affect price level of an economy.
In the past two or three years, Ethiopia has faced many economic challenges. From these challenges, the hardest are shortage of foreign currency and price inflation. It has been seen that there was real shortage of foreign currency throughout the country, again this makes things hard to buy or get what people want. Recently, this inflation became double digit and it makes things hard to achieve the sustainable economic growth.
Jemal Mohammed (PhD), an economist, agreed that there is shortage of foreign currency in the country that lead to inflation. It is observed that there is a huge market difference between the official exchange rate and the black market. Whenever the price of exchange rate in black markets rises, it is imminent that the official banks or the government start to high up the price in order to be competent.
In most cases, this happens when the demand and supply don’t go side by side or when there is high demand and low supply or vise versa. This causes the people to need more, Jemal said.
The other economist, Wossenseged Assefa, for his part supports the idea that the black market shows the real picture of the demand and supply chain of a country. This situation in Ethiopia happens because of the demand of the people. The people want more.
The question raised here is ‘what caused this?’ everything has reasons why it is happening in such a way. Jemal further highlighted that the major reason why Ethiopia is suffering this much on both shortage of foreign currency and price inflation is that there is a war in the northern part of the country, so the war is the main reason. Parties directly or indirectly start purchasing military goods so as to reinforce their power. This leads these parties to spend much foreign currency on the international markets.
Jemal also said that because of the existing situation in the country, it is difficult to attract tourists to visit the country. The import and export trade and activities will encounter pressures and problems as it is one of the major means for the country’s economy. These problems strongly affect the whole narrative of the country regarding the economy.
Backing this idea, Wossenseged also added that it is true that the main reason is the political situation in the country that caused this mess. In addition, when the country is in peace, people change their money to assets like buying houses and cars. However, Ethiopian currency is getting devalued and foreign currencies are appreciated, so when the people who got the money start to feel insecure because of the country’s situation, they start to change their money which is Birr to foreign currency and gold.
There are commodities that are highly affected by the shortage of foreign currency and price inflation. As to Jemal, among the commodities that will be in deficiency during such critical time are food items. The country imports food items like edible oil from abroad as it is very important for the survival of the people. The other is petroleum on which every activities of the country depend. Ethiopia again imports it from the international market. So that, the market needs foreign currency since Birr does not serve the purpose. Furthermore, there are also things that are not critical but essential like cars. They are getting very expensive as we are witnessing now.
Both economists agreed that in order to have a solution for these challenges the best thing that the country should do is to bring the war to the end by hook or by crook. After that, the government will take several measurements to change the entire atmosphere.
According to Jemal, if the war is ended, the government can start to implement different policies and strategies to change the situation including controlling the market and illegal inflow of foreign currency. “We cannot halt the inflation automatically, but when the war ends the economy will be stable at its time,” he remarked.
The government must also focus on the commodities that are very compulsory for the people. The government should serve the people by providing things essential for survival like food items, the economists suggested.
The Ethiopian Herald August 11/2021
