To enhance production and productivity as well as reduce inflation in Ethiopia, there are several steps that should be taken. Scholars in the economic areas recommend that building infrastructure such as roads, ports, and airports can help to improve transportation and distribution of goods, which can lead to increase production and lower prices.
In an exclusive interview with local media, Senior Economist and Executive Director, The Pan African Chamber of Commerce and Industry (PACCI), Kebour Ghenna said that the government should give due attention to reduce the internally posed inflation through increasing production and productivity.
At the same time, encouraging both domestic and foreign investment in Ethiopia can help to increase production and create jobs which can lead to an increase in supply and a reduction in prices. Providing easier access to credit for small and medium-sized businesses can help them to expand their operations and increase production so that can help to reduce prices.
Moreover, agriculture is a major economic sector in Ethiopia, and improving productivity in this sector can help to reduce food prices and overall inflation. This can be done through intensifying investments in irrigation systems, providing improved seed varieties, and better access to credit and training for farmers.
Addressing supply chain issues that are bottlenecks in transportation and storage also can help to reduce waste and improve efficiency that leads to lower prices. Since corruption aggravates the inflated cost of doing business and reduces productivity, addressing the challenge through increased transparency and accountability can help to minimize the costs and improve productivity.
Investing in education and training that helps to develop a skilled workforce that leads to increase productivity and competitiveness are points issued by conventional work practices. The scholars also recommend that the Ethiopian government should encourage both domestic and foreign investment in several ways, to ensure productivity and let the supply and the demand get balance.
In this regard, it must create a favorable investment climate by implementing policies and regulations that reduce bureaucratic hurdles, improve legal and regulatory frameworks, and promote ease of doing business. The government should offer incentives such as tax breaks, reduced tariffs, and subsidies to attract both domestic and foreign investors.
Developing infrastructure such as roads, ports, and power supply can help to reduce the cost of doing business and increase the attractiveness of investing in Ethiopia. The government can provide access to finance for investors by setting up credit guarantee schemes, venture capital funds, and other forms of financing.
It can promote exports by providing support to export-oriented industries, such as agro-processing and manufacturing, which can help to attract foreign investment. Encouraging public-private partnerships in infrastructure development and other sectors to attract investment and improve the delivery of public services should be considered.
Addressing political instability and conflicts can help to create a stable and predictable investment climate, which can attract both domestic and foreign investors. The government should intensify measures on enhancing production and productivity to reduce the prevailing inflation, scholars said.
“One of the entity that has pushed the inflation rate higher is the bank sector which tends to lend actually to companies like real estates and companies engaged in producing consumption products with higher interest rate; which makes it difficult for the manufacturing or agriculture sectors. It incurs additional cost on production process and providing the product to the market also becomes difficult.
So, there are combinations of government and banks that have role in managing inflation but at this moment, we see both the banking institutions and the government are trying hard to restrict the circulation of cash money in the country,” Kebour elaborated.
In the advent of limiting cash circulation to lower inflation, financial institutions should be cautious of its essentiality. The senior economist emphasized the need to ensure sustainable peace and create business enabling environment in order to attract Foreign Direct Investment (FDI) thereby ascertaining the desired economic growth.
However, the senior economist noted that economic growth would be difficult unless the government devises means to increase its foreign currency revenue by minimizing foreign exchange rampant in the parallel market. Africa Humanitarian Action Vice President and Senior Economist, Costantinos Berhe (PhD), on his part said that new tools are needed to be able to contain the inflation and reduce to single digit.
Inflation is a precipitation of a whole lot of economic policies, he stated, and added that those policies need to come in together to redeem the problem. He further said that the government, for example, has huge capital projects that it is developing. Therefore, how can some of these capital projects be done at earlier term of completion and then the nation go into saving the economy, subsidizing the consumers.
He hoped that the monetary and fiscal measures and adjusting taxation rate etc would bring about an impact in reducing the inflation. Limiting the circulation of cash in the economy can contribute to minimizing inflation; however, it is pivotal to once again look into the banks interest rate, he noted.
He also said that broader consultations with different pertinent stakeholders and research based solutions are essential to contain and minimize the inflation. According to documents containing inflation is a key challenge for many governments, including the government of Ethiopia. There are several strategies that the government can use to contain inflation.
It can use monetary policy tools, such as adjusting interest rates and reserve requirements, to manage the money supply and contain inflation. The government can use fiscal policy to reduce inflation by controlling its spending, increasing taxes, and reducing subsidies. It can also implement supply-side policies to increase the supply of goods and services, which can help to reduce inflationary pressures. This can include improving infrastructure, increasing productivity, and reducing bureaucratic hurdles to business.
The government can use exchange rate policy to control inflation by managing the value of the local currency in relation to foreign currencies. It can address structural issues such as corruption, inefficient bureaucracy, and market distortions, which can contribute to inflationary pressures.
Overall, containing inflation requires a multi-faceted approach that combines monetary and fiscal policies, supply-side policies, exchange rate policy, and addressing structural issues. Additionally, the government needs to ensure that any measures taken to contain inflation do not have negative impacts on economic growth, employment, or the well-being of the population.
Looking the macro-economic aspect, according to the economists, the nation’s economy has been suffering from various woes for decades and among others, foreign debt in which the nation services two billion Dollars annually, the widening gap between Dollar and Birr exchange rate on official and the parallel market, unemployment, inflation, illegal trade and corruption. Hence, addressing the problems is not an easy task. So far, the government introduced various measures to mitigate the economic woe.
The implementation of the home grown economic growth plan can be cited in this regard. The nation though it is categorized as highly indebted poor country did not fail to pay its debt and still has a venue to secure additional loan from international financial institutions so that enable to allocate the obtained money in the targeted sectors.
To mitigate unemployment so far, the government allocated huge budget to provide loan to small and medium size enterprises and annually their job creation capacity is increasing. To address the shortage of hard currency encouraged and provided incentive to Diaspora Ethiopians to send their money in the formal channel because sending money out of the bank channel again aggravates the inflation.
There have been also measures to reduce inflation by supplying agricultural products and supplying to the local market. Export is the major sector that helps the nation to garner hard currency and efforts have been undergoing to diversify the export products and to reduce exporting cost, transporting goods to Djibouti through rail transport plays pivotal role. Moreover, to mitigate the security problems which hamper transportation, the government in addition to taking action in law enforcement, it has negotiated with armed political groups to bring sustainable peace.
BY ABEBE WOLDEGIORGIS
THE ETHIOPIAN HERALD WEDNESDAY 19 JULY 2023
