Currently, Ethiopia faces various forms of economic challenges and among others shortage of hard currency in banks, high inflation rate, unemployment, the price hike on imported commodities such as petroleum oil, fertilizer and other industrial inputs. In addition, shortage of agricultural products in the market further aggravated the price hike. To mitigate the problems, the government took various measures particularly that subsidize basic commodities. However, it still remains hard especially to the poor people to withstand the cost of life.
While approached by The Ethiopian Herald, Professor Alemayehu Geda, an Economist at Addis Ababa University, commented on the issue. As to him, there are four factors which are responsible for the aggravation of economic crises and among others agricultural production which does not go in line with the population growth in which currently the population number is surpassed the number of population existed during the emperor era by four folds while crop production grew by snail pace.
For example, currently, farmers grow teff 22 quintals per hectare but if sufficient inputs are utilized, it would have been produced 60 quintals per hectare nearly threefold of their present harvest. Wheat also can be produced 60 quintals per hectare if modern inputs are utilized. The crop productivity rate is below the average capacity.
During the reign of emperor Hailesilasie I, the number of population was around 30 million and currently, the number rose to 120 million grown by fourfold but the ploughed land area has grown only by 3 percent from 9 to 12 percent. Therefore, it is fair to say that Ethiopia did not work on agriculture sector seriously in the last 30 or 40 years. Hence, the sector’s problem is typically structural.
The other factor which aggravates the economic crises is the rapid devaluation of Birr against Dollar for the last four years and as a result, inflation exacerbated following the devaluation.
As to professor Alemayehu, government’s argument that devaluation of Birr boosts export and reduces import is not logical and does not bring the expected result. On the contrary, price hike continues alarmingly. The other factor is printing of Birr and injecting into the market. By the year 2008, the amount of the total money circulated in the market and deposited in the bank was 67 billion Birr but since 2012 it rose to 870 billion Birr. The new money pouring to the market has risen to 30 percent on average annually. As to Alemayehu, in the past, the registered economic growth claimed by the government was by adding the money growth including obtained by loan and aid. He said that he often opposed the printing of new notes of Birr but no one has opened ear to his suggestions.
The fourth problem lies on the business men. In Ethiopia, traders intend to gain profit from one product up to 100 and 200 percent unfairly. In other countries, however, traders gain only 20 percent profit with fair competition. In the USA, for instance, traders benefit only 10 percent from one commodity. A year ago one could eat injera with shirowot with 15 Ethiopian Birr; by now, however, the price rose to 50 to 100 birr. These all indicate that how traders exploit customers for their own greedy money appetite. Hence, to mitigate the problem, emphasizing on the mentioned problems is essential.
Atlaw Almaw is also an economist. As to him, even though commodities’ price is skyrocketing, the government, to reverse the situation, has been taking some progressive measures particularly on the agriculture sector. Wheat production through cluster farming can be mentioned as the case in point. But what is the short coming is that the measures that have been taken are usually kind of fire extinguishing not for long lasting solution.
It rather better employing the youth in irrigation farming in which can boost production aiming to create job opportunities to the needy.
As to the Atlaw, youth unemployment rose to 25 percent which is extremely high. The rate of youth unemployment should not be more than 5 percent. Unless mitigated in time and appropriately, youth unemployment may result in political discontent.
Raising agricultural productivity can’t be realized within a short period of time. Similarly, enhancing the productivity of crops such as teff, wheat and barley per hectare is not possible. It needs inputs such as fertilizer, pesticides and herbicides and extension services. However, the price hike of such inputs rises in more than tenfold in the last ten years and such a situation brought its own draw back on the sector progress and in order to resolve the challenges the market value chain should be modernized.
As to professor Alemayehu, exchange rate of Birr against Dollar should not be fluctuated rather it should be stable. Foreign currency sent from abroad by Ethiopian diaspora in the form of remittance should be in the formal channel through recognized financial institutions. Ethiopia earns currency from remittance more than it obtains from export up to six billion Dollars annually. Donors only provide 1.5 billion Dollars annually.
The rate of Birr printing seems reduced. Since the coming to power of the new government led by the Prime Minister Abiy Ahmed (PhD) improvement is seen. Previously, the print rate was 30 percent while currently it contracted to 20 percent.
As to Atlaw, illegal trade also is responsible for the price hike but it is impossible to control and manage the illegal activities of the traders because currently in Ethiopia there are about 500 thousand retailers whereas there are only around 20 whole sellers.
As to him, the government should compete with these retailers with bulky number in two ways. One is through consumer cooperatives associations and government shops such as Et- fruit because they are instrumental to stabilize the market. Through these tools supplying basic products is possible in addition to strengthening the connection between farmers’ associations and that of consumer cooperative associations should be taken as option and with that supplying the products with the reduced price is possible. These can be taken as solutions for shorter period.
On the other hand, the government should support some supermarkets which provide commodities with fair price. Such venture makes the business feasible. Hence, supporting such markets can be taken as a tool in stabilizing the market.
To incentivize such private firms, the government should provide market places, access to loan and providing free advertisement. In such mechanism, the government even can fix price in their products which are basic needs to the ordinary citizens.
Recently, when price of five litter edible oil rose to 1000 Birr the government announced that it would open the retailing business for foreign investors asked whether such option is viable or not Alemayehu further said that it is not a preferable option because in Ethiopia 69 percent of job opportunities are created by the service sector which is a highest percentage. Hence, opening the retail sector for foreign investors means letting the fate of such huge number of employee to be uncertain.
The majority of the service sector firms engaged in retail and whole seller trade. Next to these, they engaged in vehicle maintenance and garage. Hence, threatening the sector would mean multiplying the number of unemployed army.
Controlling local traders is very difficult but it is possible to manage traders in countries such as Kenya because the number of super markets is only two which have a monopoly power. But in Ethiopia with 500 thousand retailers, it is impossible because they created job for such huge number.
In the very beginning the scarcity of commodities here in Ethiopia does not attract foreign companies to come here. What do they sell here? Even if they import goods and sell their products to local market with Birr, by what currency do they repatriate their profit? Let say that they import edible oil and packed water to their super market and sell it in Birr, so how could they transfer their profit to their native country. If they want to exchange their Birr obtained in profit with Dollar in National Bank of Ethiopia from where does the bank bring the Dollar. It is known that the bank is suffering from shortage of hard currency for long which again disrupts the economy.
BY ABEBE WOLDEGIORGIS
THE ETHIOPIAN HERALD WEDNESDAY 4 MAY 2022
