Ethiopia is endowed with various natural resources which can elevate its economic status and the living conditions of citizens if they are fully exploited. It is also the second populous country in the continent with more than 120 million in which 70% of it below the age of 30 which can supply labor force to the economy. It has vast arable land which can boost and transform agricultural production. The surface and underground waters also have high potential for the development of renewable energy and increase agricultural production through irrigation system and accelerate the nation aspiration for ensuring food security. The mining resource also can enhance the nation foreign currency earning capacity. However, the mentioned resources are not fully explored and exploited due to various reasons and among others, lack of sufficient technology, finance and skilled labor force. As the result, the nation remains as pauperized nation in the world.
The nation also faces various challenges which hamper the ambition to poverty reduction and attaining economic growth. The macro- economic imbalance which manifested by inflation, poverty, unemployment, debt service, shortage of hard currency, illicit trade, contraband, declining of the export trade performance and power interruption need speedy remedial actions.
The government in its ten years perspective economic plan introduced in 2019 indicated that to improve the macroeconomic imbalance it would take various measures. Among others, to enhance the nation foreign currency earning capacity took boosting export through diversifying products and increasing volume as mechanism. It also strived to create enabling environment to the Ethiopian diaspora to send the remittance through formal banking channel and to that end it allowed them to open bank account and deposit their hard currency in the Commercial Banks and to use it based on the directive given by NBC. It also introduced new laws to attract foreign investment and to engage in the manufacturing sector and provided land and working places to investors in the industrial parks, provided tax holidays to incentivize them, availed one stop shot banking services in the industry parks. It also supplied electric and in ternate services in average price.
Investors engaged in textile and garment obtained facilities from the government to export their products to the outside markets so that can gain hard currency. Enabling environment also created to them to obtain inputs for their production locally which again created linkage between agriculture and industry. The other sub sector of the manufacturing which attracted both foreign and local investors is the production of leather and leather products. The sector obtains inputs to local sources and export products. Both sub sectors created job opportunity for tens of thousands. Exporting live animals to the Middle East supports the nation foreign currency earnings. Mining is also one of the sectors which attract foreign investors and boost export, gold, opal and tantalum play crucial role in this regard. It is also proved that the nation has petroleum and natural gas in the Somali regions but needs more investment and technology and if the projects going on there accomplished and become operational can shore up the nation foreign currency crunch. The other sector which is expected to boost the nation foreign currency earning capacity is energy. About 80% of the nation energy source is derived from hydro-power and currently the nation started supplying electric power to the neighboring countries such as Sudan and Djibouti and could able to earn hand some amount of currency. The stretching of electric line to Kenya is completed and sooner exporting power will be started and the nation will gain additional income.
It is understood that Ethiopia annually earns 3 billion Dollars from export but it imported goods worth of 18 billion Dollars and this clearly indicates that how the nation is indulged in negative trade balance. Hence to narrow the gap exerting more effort is essential. Side by side with boosting export, the government assumed import substitution as a way out through saving the nation hard currency so that enable to boost the reserve. As mentioned above Ethiopia’s economy is agrarian yet it imports agricultural products such as grains, cocking oil and other products can be substituted by local products and it is possible to save the hard currency that has been allocated for the importation.
Currently due to various reasons more products such as live animals, coffee, oil seeds, cereals, vegetables and fruits are illegally exported to the neighboring countries as the result, the nation annually lost billions of Dollars. Had the products been exported in the legal channel the nation would have been gain a lot. According to the Ministry of Agriculture, weekly up to 10 thousands cattle are illegally exported to the neighboring countries and for the poor country such as Ethiopia such evil act is not tolerable. What is sad is that, the neighboring countries re-exported Ethiopians cattle to the third country and boost their hard currency income generation. Therefore to reverse the situation the legal enforcing bodies should take strong measure against the culprits.
The other approach the government step up to garner foreign currency is to make dialogue with international financial institutions such as the World Bank and the International Monetary Fund to secure loan and rescheduling debt service through negotiation. According to the recent government report, Ethiopia is owed 28 billion Dollars from the western partners and China and such debt to the poor country such as Ethiopia is unbearable. Currently the nation annually allocated two billion Dollars for debt services. So far it made dialogue with the western partners but on their part they put their own precondition that should be full filled by Ethiopia to be part of the reschedule program. Some of the criteria’s are devaluation of the birr against Dollar which aggravate inflation.
Currently one Dollar is exchanged by 54 birr in the formal market in the banks but in the parallel market it is exchanged by 110 birr and the widening gap between the formal market and the black market might push the government to accept the international financial institutions request.
Ethiopia needs to reform its financial system to create vibrant financial markets comparable to member states in the BRICS, according to a study conducted by the Ethiopian Economics Association (EEA).
The study titled “Does Ethiopia Benefit from Joining the BRICS? Perceptions and Global Trends” was presented at the Ethiopian Economics Association plat form.
The association has employed a perception survey of some 233 economists as primary data on the expected costs and benefits of Ethiopia from this emerging bloc.
The study stressed that the financial reform would allow Ethiopia to maximize its benefits from the BRICS membership.
Recall that Ethiopia was invited to join the emerging-markets bloc of Brazil, Russia, India, China and South Africa (BRICS) at the end of August 2023.
Presenting the study, Ethiopian Economics Association Research and Policy Analysis Director Degye Goshu said BRICS provides great opportunities in human resource development, information and technology development as well as finance.
But Ethiopia has to work with both the BRICS and western financial institutions like World Bank and IMF, he added.
According to him, Ethiopia does not compete with other member states in terms of financial institutions, financial market development and other things.
However, the country will benefit from the bloc (BRICS) if it improves on these. It is especially imperative to make banks autonomous.
The director urged the nation to focus on improving financial policy, and bank governance that will allow it to reach the level that many countries have reached.
More importantly, Ethiopia should strengthen its capacity for effective operation of financial markets, he added.
“The country is required to create vibrant financial markets comparable to member states in the BRICS,” the director stressed.
The study has given context on the ongoing global trends in the New International Economic Order (NIEO) and those factors that pushed Ethiopia to join the BRICS bloc.
NIEO is an economic movement proposed with the primary objectives of reforming the international financial institutions and redistribution of wealth between developed and developing countries.
The other aim of the New International Economic Order was to ensure sovereignty of developing nations and enhancing South- South cooperation.
However, Degye believes that the New International Economic Order has not yet realized its primary objectives.
According to him, the governance gap between the developed and developing nations has increased.
For instance, voting power at the World Bank Group (WBG) and IMF is controlled by few countries. Out of 189 countries in WBG, five countries have 37% vote; whereas 162 countries have only 30% vote.
This has resulted in income and export gaps between high income countries and least developed countries.
The Foreign and Direct Investment (FDI) net inflows and outflows remain unchanged.
BY ABEBE WOLDEGIORGIS
THE ETHIOPIAN HERALD WEDNESDAY 7 FEBRUARY 2024
