BY ABEBE WOLDEGIORGIS
Population for a country is the core wealth. Being the second populous country in Africa, Ethiopia is blessed with human resource and can make a means of growth but if it managed this asset properly. In Ethiopia population growth is the highest in Africa with high dependency ratio and poor family management. Therefore, creating well trained human power can support the nation’s economic growth.
In order to attain structural change, the government introduced homegrown economic reform. In addition, it has been implementing the 10 years perspective development plan. Nevertheless, new international phenomena and local incidents are affecting the macro economy of the country by creating anomalies.
Recently, the Ethiopian Economic Association made discussion on issues of the country’s political economy, land policy, conflict and post conflict economic rehabilitation mechanism. As to the study paper presented on the occasion, the economic crises witnessed in the country is multi- dimensional.
Currently, inflation has been galloping, huge foreign debt, shortage of foreign currency and anomalies in the fiscal policies particularly that related with conflicts taking place in the northern part of the country are critically harming the nation’s economy. As per the report of the association, the ongoing inflation which is in its alarming rate attributed to the new economic structural reform, finance supply, interest rates, the over value of foreign currency, export, tariff on imported goods and foreign currency reserve.
On the occasion, the Ethiopian Economic Association Research and Policy Study Director, Degiye Goshu (PhD), presented paper with regard to the cause of the aggravating inflation and the cost it does incur. As to him, the two digit inflation rate has been squashing the people for many years.
Ethiopia has become one of the 10 countries critically affected by high inflation rate in the world and in Africa and it has been the third inflationary hit country next to Sudan and Zimbabwe. Some figures also indicate that the inflation rate registered in Ethiopia surpassed most sub Saharan African countries and other countries outside Africa. Particularly, in the last eight years, in Ethiopia, the chance to escape from poverty has been deemed. Among the criterion put to evaluate income growth basic social security or safety net can be mentioned here. In these regard, the majority of the population rest at the verge of poverty and inflation erodes citizens chance to alleviate poverty.
According to the welfare regime index since 2016, it is declining and worse to these; inflation has been aggravating the situation. On the other hand, some problems witnessed in the economic structure aggravate inflation. Though the role of the agriculture sector in the nation’s economy is declining since 2008, the growth of the manufacturing sector in the economy is insignificant.
On the other hand, the huge amount of money circulating in the market has aggravated inflation. The circulating money should go in line with the available goods and services in the market and considering its character is essential. The supply of money to the market surpassed the economic growth which in turn destabilizes value of the money.
According to Degiye, foreign influence particularly, export and the declining of the purchasing power of the Birr since 2018 does not bring positive outcome on export it rather brought negative result.
The government often claims that the devaluation of Birr against the Dollar boosts export and enhances the industrial sector competition capacity but whether the claim is correct or not study has to be made and if it is not correct corrective measures has to be taken. Devaluating the purchasing power of Birr does bring only short term benefit. Though the intention was to boost the competition capacity of the export, it has its own negative repercussion.
As to Degiye, the devaluation of the Birr purchasing power negatively affects the inflow of Foreign Direct Investment. Some argue that, the increment of the foreign currency earning of the nation in the last budget year related with the Birr devaluation. But Degiye does not agree with the statement. As to him, in the budget year, the price of coffee grew by 700 percent in the international market, the coffee price also increased in similar way and the registered income in foreign currency which is 1.4 billion Dollars does not give sense to the population with more than 100 million. Such amount of hard currency probably is big to countries like Djibouti or Eritrea. When the earned money is divided to the population it means nothing. He further said that, in the last ten years as compared to the nation’s economy size, the volume of export is declining.
According to economists, Ethiopia mostly exports agricultural products to the foreign market which in turn have its own negative consequence on domestic supply of agricultural products.
When the Ethiopian export goods and services are evaluated it is indicated that the nation’s export accomplishment capacity is very low and categorized one of the 6 countries in Africa which have low export performance. Export also brought shortage of commodities on domestic market and the export volume is plummeted from 17 percent in 2011 to 7 percent in 2020. If the nation has sufficient products to be exported, it does not matter but with the absence of sufficient products only serves to earn foreign currency that does not make the nation competent in the world market. As to Degiye, in general, the nation exports food and food related items which in turn raise food prices in the domestic markets.
This happens because the nation suffers from shortage of foreign currency and obliged to export food commodities only to earn foreign currency. The government predicted that, the nation will register 6 percent economic growth in the current budget year but it is reasonable to request where such growth is obtained. If the government intends to attain the growth from the service sector the growth does not trickled down to the ordinary citizens.
Depending on the service sector does not enable to manage inflation and push the population only to consume and demand commodities imported from outside. In addition, it aggravates the supply side problems. As to the economists, the service sector is equally important to the manufacturing sector. Therefore, by increasing the manufacturing sector rapidly supporting the service sector by supplying raw materials is essential. The government should pay attention to solutions which can stabilize inflation and forwarding viable policy is essential.
In addition, evaluating the measures whether they bring solutions or not is vital; as to the study paper presented by Degiye, in general, the nation’s political economic journey from 2006 to 2022, according to the international criterion is fair to say that the economic transition is not successful. It can be explained that the political development surpassed the nation’s economic achievement.
In general, the economic problem is related with the inflation and anomalies on the nation’s macro economy. In addition to this, improper implementation of the economic policy aggravates the situation. Therefore, the government should formulate solution in relation with promoting the production, accelerating industry sector growth, introducing conducive land policy, finance budget, tax and investment, improving trade and foreign currency garnering system.
THE ETHIOPIAN HERALD THURSDAY 6 OCTOBER 2022
