BY ABEBE WOLDEGIORGIS
Three years ago the Ethiopian government introduced Home Grown Economic Reform which has lofty ideas helpful to meet the nation’s prosperity aspiration.
The idea was endorsed by the public but due to the outbreak of the war in the northern part of the country ignited by the terrorist TPLF last year; it has not shown progress as it was intended. “The war brought heavy toll on the economy”, Eyob Tekalign (PhD), State Minister of Finance said.
While briefing the local media recently, he said that earlier to the outburst of the war, the economy was recovering from COVID-19 and had it not been for the introduction of the reform, it would have been shattered severely.
Currently, the economic performance of the nation shows some progress. Particularly the Banking sector is registering better performance and obtained huge profit. The Commercial Bank of Ethiopia made its paid capital to elevate to trillion Birr. The agricultural sector is also stimulated and the mining sector showed improvement and enabled the country to garner significant amount of hard currency. Substituting coal importation is in progress and capital market will be officially inaugurated next year, he said.
As to the State Minister, Ethiopia registered 6 percent economic growth last year and it is predicted that this year’s economic progress will be the same. As compared to other African countries, Ethiopia’s achievement is better in this regard.
Indicating impact of the war on the economy, Eyob said that the very victims of the war are the peoples of Tigray, Amhara and Afar. Huge infrastructural damages are also witnessed in the freed Amhara and Afar regions. Not only that, the war repercussion poses a moral challenge to the international community as the TPLF combatants committed non imaginable atrocities against the people under invasion. Thus, big economic rehabilitation work is ahead of the nation. The government has prepared a road map for economic recovery which needs the partners support.
The priority issue is rehabilitating the war affected and internally displaced communities. Restoring their homes and compensating looted assets is essential. Reconstructing social services, delivery institutions such as health centers and hospitals, educational institutions and other infrastructure and making operational is vital. A team of experts is dispatched to the war affected regions to undertake study on the damaged properties and provide the cost of reconstruction. The government is exerting its maximum effort in this regard.
Budget shifting to the reconstruction might be taken as a solution so that delay or termination of some less relevant projects can be taken as a means to support the war affected zones. Poor accomplishment of projects that is being witnessed is costly to the government which necessitates strong measure in order to avoid its replication in the reconstruction process.
Constructive measures are essential to swift reconstruction. Unless, bringing the intended economic progress will be a day dream and to this end, various methods should be employed.
Some westerners are seen withholding their foreign investment aiming to pose pressure against the Ethiopian government. Nevertheless, the recently obtained military upper hand over the terrorist group by the government forces could reverse the situation to the better.
Wasihun Belay, an economist who is working as a private consultant for various firms on his part said that war by nature harms economy. Thus, it has a multifaceted impact on the nation. It demolishes infrastructure, consumes huge amount of government treasure as a result of exceeding the normal military expenditure through purchasing weapon, transportation of combating soldiers from place to place, providing logistic and so on. Besides, it consumes lives of economically active citizens on top of making many physically disabled. In the country, where the economy is at the developing stage, the outbreak of war makes the recovery task very hard.
Moreover, when the geographical areas of the war are enlarged, the areas where the economic activities are undergoing will also be enlarged. Industries, farm lands and tourism sites located in the nearby zones might be closed down and their contribution to the economy also will be declined. Production and distribution of basic needs to consumers are disrupted.
The economic zones will be narrowed and export also shrunk in terms of both volume and diversity. For example, if 10 shoe factories established for export and if the war is ignited in the areas where the three shoes factories are located, the shoes export is also deducted which in turn affects the nation’s capacity to garner foreign currency. When firms are failed to pay tax due to conflict, the nation’s income will also be reduced which resulted in bulk amount of unemployment. The displaced people will be out of production and will become aid dependent.
By the same token, the outburst of war also poses adverse effect on the nation’s capacity to attract foreign investment. The reason here, among the most criteria for investment attraction is peace and stability of the given country.
Hence, as of the economist, the government should craft short and long term plans in order to save the economy from collapse. The first is shortening the period of the war by any means and side by side, undertaking the rehabilitation works is essential by bringing the displaced people to the normal life. Consequently, repairing and reconstructing infrastructures and facilities such as roads, schools, universities, hospitals and health centers should be underway.
But the task is not easy and needs huge amount of finance that may surpass economic capacity of the government. Hence, as to Wasihun, it needs resource mobilization both from local and international sources. Domestically, selling bonds to citizens can be taken as a way out.
According to Eyob (PhD), the State Minister, to recover the economy from slowing down, the government has not an intention to introduce new tax rates but there will be some changes. It is understood that there is big gap in technology usage in relation to tax collection which must be rapidly improved. On the other hand, property tax will be introduced in the coming months. Such measures enable the government to raise its income.
In relation with the recently introduced Home Grown Economic Reform, the international partners are rescheduling the payback of the 10 billion Dollar debt and following up the matter is underway. Debt rescheduling committees that comprise countries such as France and China are identifying the types of debts which are prioritized for the rescheduling.
In addition, they are consulting on the ways to include debts owed by the private sector. The loan provided by the IMF was to be refunded within 6 months. But it still withholds 3 billion Dollar loan which was intended to be released. Sooner than later, when the security situation is improved, IMF is expected to release the loan.
But the pledged 10 billion Dollar is still delayed. Other regular loans also still are not secured. It is also impossible to obtain budgetary support from partners that the nation has expected since last year.
The government is forced to engage in to the war unwillingly to enforce law and secure sovereignty of the country following provocative acts of the terrorist group that resulted in loss of lives and destruction of properties. Discharging of the suspended loan will enable the government to swiftly undertake the rehabilitation work. The drying up of loan from the western world is pushing Ethiopian government to stare at other alternatives and among others the African Banks can be taken as option and working with them is preferable.
Currently, the COMESA Bank is getting stronger and Ethiopia is a major shareholder in the Bank. It provides various options to help countries getting loan and to enhance its share in the Bank. It is believed that strong African Banks are vital to the continent.
Asked whether the government privatization of public enterprises completed or not, Eyob said that currently, more bankrupted public enterprises become profitable. The first privately owned telecom is on the way to begin its business. However, privatizing the energy sector is a little bit delayed and particularly distribution of power will be totally given to the private sector and the scheme will be completed in this budget year.
The privatization of sugar projects is interrupted due to the war and interested entities showed reluctance to go to the place and look the projects. With regard to rail transportation, the government is looking to privatize and it is consulting with the government of Dijibouti. Currently, the ownership of the Ethiopian rail corporation is transferred to the public enterprises administration agency.
The Ethiopian Herald December 29/2021
