Currently, as Ethiopia is under pressure from both internal and external factors, the economic burden on the people of Ethiopia has become the prominent question. Of the last three years, as a reformist, the Ethiopian government has gone to the limit seeking a better escape route from the current heavy economic burden.
Living in a globalized world, Ethiopia has been involving in different international agreements to work with the rest of the world, politically, socially and economically. The nation has also not forgotten its neighbors, so there are several continental and regional agreements among nations in Africa some of which Ethiopia is a member.
From the many agreements, Ethiopia puts her hands in one of the prominent Africa – USA agreement. The African Growth and Opportunity Act (AGOA) was signed according to US law. According to Aaditya Mattoo, Devesh Roy, and Arvind Subramanian on IMF Working Paper, “The Act aims at broadly improving economic policymaking in Africa; enabling countries to embrace globalization and securing durable political and economic stability. As an incentive for Africa to adopt these policy changes, AGOA offers increased preferential access for African exports to the United States markets tax free.” It creates opportunities to some Sub-Saharan African countries which are labeled as ‘undeveloped’. AGOA provides a prudent chance for those countries to be benefited from the opportunity.
On the other hand, Ethiopia and its neighbors have regional trade integrity. This kind of regional trade agreements, as to Chiza Charles N Chiumya, will be either trade-creator or trade-diverting. It may create trade opportunities among the nations, or the trade might be diverted to low cost imports from external trade agreements. Further, Africans have around eight regional economic communities under the general African economic community as the main objective of bringing regional and continental integrations.
Ethiopia has been great beneficiary from the AGOA to export its commodities to the US. However, recently, the US government warned Ethiopia to end the conflict in the northern part of the country. If not, sanctions that include canceling from AGOA will be applied. Therefore, Ethiopia has to work hard to cope up the pressure and afloat its economy whether it becomes operational. Therefore, it needs a spare plan to defend itself from such external pressures as the nation might be in grave danger from the upcoming sanctions. The Ethiopian government along with experts should come to the point on how the country can cope up with the upcoming pressures and sustain its development for the coming many years.
Economists have different concerns regarding how the government copes up the pressure and makes the economy afloat where it is or keeping its momentum. Jemal Mohammed (PhD), an economist, said that US led trade agreement, AGOA, has tremendous benefits to countries like Ethiopia. With the benefits of the Act, the specific sub-Saharan African countries can attract both international and multi-national companies to invest their asset in Africa. The regional trade integrity gives the investors a double chance to export their products to both regional counties and to the US without paying taxes. Further, almost all African economy is small economy, so that countries like Ethiopia should use such opportunities to expand their economy.
The other economist, Haileyesus Mane highlighted the prospect of the major opportunities towards AGOA. He said that the Act paves a way to new market destinations in USA for countries like Ethiopia with limited resources. This kind of agreement has also a great impact on the nation’s GDP. In addition, the Act has brought benefits like a source of foreign currency generator, a marvelous way for job creation because many investors from local and abroad are interested to be involved in this kind of firm. He also added that this kind of agreement is vital to create a bilateral relation with such countries like the United States that uses the Act as a mode of aid to the third world countries.
Contrary to its objective, nowadays, USA uses the AGOA to threaten countries whenever the US wants to interfere in the internal affairs of a sovereign nation. Ethiopia faces such kind of challenge and pressure from USA. In order to tackle the upcoming pressure, the nation needs to have a spare plan.
Again, Jemal said that Ethiopia mainly exports its precious product, Coffee, to the USA. Excluding a country from this Act might be a great constraint on the economy. It is obvious that the USA cannot avoid products from Ethiopia; instead, the products will be taxed. Therefore, the government of Ethiopia needs to compensate these gigantic firms to get what they lose when taxation is applied. Therefore, it will be better to subsidize these companies here in the country and help them continue exporting their products to get foreign currency.
Haileyesus pinpointed that losing AGOA has a great impact on the Ethiopian economy. He believes that one of the main solutions for not losing the agreement is to create close relation with the US government. Previously, the Biden’s administration promised that the administration will never use sanctions to hurt civilians. So that it will be better to have a better diplomatic relation with the country. Besides, Ethiopia needs to follow export-led home-grown economy to produce and export products with standard quality both for the local and international consumptions.
Haileyesus also mentioned that the government should finish the mega projects that help the nation generate income from export. This also includes the Great Ethiopian Renaissance Dam which brings ample of benefits to the country. The government should also work on investments that bring technologies and knowledge transformation to the country.
To get what the country needs from the regional trade integration, Ethiopia must build better capacity for the industry sector to be more competitive, said Jemal. There are countries like Kenya with better achievement, so Ethiopia must strive to be a better competent in the world of investment. In the long run, Jemal said, the value of industrial products will be increased than the value of agricultural products. Therefore, Ethiopia should focus on the industry to be cherry-picked by investors. For better regional trade integrity, African countries have a common agreements regarding tax, incentives, and tariff related issues and binding legal framework. Regional countries should work on employees’ capacity development, technology transformation, and research development agreements with universities, and facility queries on infrastructure.
Haileyesus also supported the ideas of common agreements between countries. This kind of agreement also gives brand protections to a specific company or a country. Besides, these agreements have the power to force countries and companies to produce quality products to the regional trade community.
In order to create a room for the rest of the world to be part of the regional trade integrity, Jemal said that Ethiopia should strive to create better atmosphere for investors to invest in the country. The government should think of building cities around borders so that products can be transported easily to the neighboring countries.
In many people’s mind, there is a question ‘Why does the US want to impose a sanction and threatens the current Ethiopian government with AGOA agreement but not to the former?’ To answer the question, Jemal proposed two answers. Firstly, he said that, may be, the US believes the current government will be more independent and US may lose its benefits from the Horn. This government will also create a better integrity among the Horn nations.
Secondly, the US administration didn’t like the unity among Ethiopia, Eritrea, and Somalia. They believe that they may lose their power in these countries including power in the Red Sea. It will be very hard to regain the power once it is lost. In addition, the US thinks that these governments may not support their policies and ways as the former governments did. Therefore, it would be better to make these countries suffer from the upcoming sanctions.
To wrap up the ideas, as Africa is the major resource provider to the world, every other continent wants to take its share by hook or crook. To escape from the shackle, African countries must work together to defend themselves from the idea of colonialism and set themselves free. As economy is the major problem for most African countries, governments should work together to develop their own system to help and support one another. Africa will be prosperous by its own hands, they opined.
BY DANIEL ALEMAYEHU
THE ETHIOPIAN HERALD OCTOBER 22/2021
