Ethiopia reviews growth plan: Claim of consistent poverty reduction in inflationary situation less convincing

8 Mar

By Keffyalew Gebremedhin

Newly paved highway out of Addis Abeba'

Newly paved highway out of Addis Abeba’

Finance and Economic Development Minister Sufian Ahmed last Tuesday (March 5) opened in Addis Abeba the annual review session of the growth and transformation plan (GTP). The meeting, which was held within the premises of the UN Economic Commission for Africa (ECA), is reported to have identified “rapid social expansion, increasing tax revenue and massive infrastructure development” contributing to the growth of the economy.

While lauding the progress the country has made in its economic growth, notwithstanding the declaration experienced for the greater part of GTP’s life and is likely to have an adverse effect on the overall GDP growth of the type that forced the latest downward revision, the minister was still emphatic in characterizing the state of Ethiopia’s economy as the fastest growing on a continual basis and envy of other countries.

It is in that context that he announced Ethiopia’s reduction of poverty by 2 percent since GTP’s launch a little over two years ago, according to ENA.

In reference to the recent downward revision of GDP growth, Ato Sufian attributed the negative factors in the economy merely to the health of the global economy and the uncontrollable inflation at home. While GTP has been coexisting with one of the highest inflation rates in the world, it would be recalled that the government adamantly persisted with its claim of the magic 11.4 percent growth rate.

As a matter of fact, it was not realized and thanks to the prevalence of commonsense that there now seems to be tendency to turn to the realism of numbers, if the recently announced 8.5 percent revised growth figure is any indicator – unless it is attached to another finality. Interestingly, in so doing they failed to give any attention to what that revisions may entail to other areas that were impacted by the presumed higher growth figures, for instance, poverty reduction.

Be that as it may, it is to be recalled that since October 2008 Ethiopia has experienced 30 months of double-digit inflation and 27 months of double-digit food inflation, according to data by the Ethiopian Central Statistics Agency (CSA). If this is favorable to poverty reduction, it means that anything is possible in Ethiopia. If that were indeed realistic, one positive evidence would have been that by now the number of the poor around the world would also have declined as fast.

Notwithstanding that, the purpose of this article is hardly to deny existence of economic growth nor the consequent transformations it has brought about especially in Ethiopia’s stocks of infrastructures. Therefore, under scrutiny is the extent to which data has been purposely massaged for political objectives and enticement of donors, in a country where food imports remain business as usual and foreign aid at its highest.

food aid shipments continue (Courtesy of IRIN)

food aid shipments continue (Courtesy of IRIN)

It has a narrative in Ethiopia’s reality that the government’s credibility has been nil. Its credibility, especially in the eyes of those of citizens, who are supposed to be the primary beneficiaries could not testify about the said changes.

After all, if the speed with which Ethiopia claims to effect poverty reduction in this political and macroeconomic environment is true, social transformation would have been as simpler, i.e., just as numbers galore, then perhaps the minister’s claim could have been right and Ethiopia’s experience beneficial to other countries, especially those who cannot verify directly from the Ethiopian people. Otherwise, it is the TPLF, DFID and its supervisors that tell on behalf of Ethiopia to the outside world that all is well, notwithstanding the commonplace heavy-handedness and the ethnic dimensions that are eroding the unity of a multi-ethnic nation!

Nonetheless, the essential fact is that their claims are belied by the lack of commensurate correspondence in positive transformation of the lives of ordinary people. In other words, there is no way Ethiopia could have managed to attain that level of poverty reduction in this inflationary environment. By any economic or political measures, wherever and whenever inflation represents the loss of assets and, thus, with added taxes on the livelihoods of people, this cannot be real.

There is no need to bring here the question of the massive dislocations that have been taking place throughout the country and the consequential harmfulness of land grap to those affected. They are citizens who have been robbed even the hope of a better future.

On inflation, I might add here the observation, for instance, that most Ethiopian officials from the prime minister down the chain of command have been ecstatic about its numbers changing course as of September. It is difficult to discern that exuberance in Finance Minister Sufian Ahmed. This may be because, inflation tapers to single-digit in Ethiopia for few months past the harvest season.

In fact, the minister’s statement to the GTP review session has put its accent on worries about the future, especially, as usual, the likely likelihood of inflation making a turnaround and its implications to urban unemployment being real.

Interestingly, even in that connection the best Ato Sufian could do as finance minister was to appeal to businesses and government to work together. The only problem there is that there evidently is pressing need for vigorous action in that respect. Unfortunately, perhaps he may have been held back by the fact that it was beyond his office’s mandate to make mention of anything about the vitally necessity of fostering the confidence of businesses in government policies.
 

Could Ethiopia end data massaging?

There surely is the habitual problem of lack of data integrity, caused by politics considering it insurance for an unaccountable governance. In brief Ethiopia would do better its numbers intimately linked to the country’s reality, instead of political objectives of the ruling party to remain in power in perpetuity. For instance, I would have preferred if the minister did not speak at the GTP review meeting about numbers (2 percent) relating to the decline of the poverty level in the country. The sound of it is good for the politics of foreign aid, but not the reality and the nation’s governance that has gone from bad to worse.

Let me stress here that, while I do not have the data the minister may have, my sense is that it is extremely difficult in this economic and political environment to achieve the rate of poverty reduction that is now being talked about. Recall how much doctoring the numbers hurt Argentina. After several warnings and technical assistance, the IMF last month ended up castigating its doggy economic data, which resulted in one of the rarest declaration of censure by the organization. It did not end there; Argentina is required to rectify all those numbers, or else face ejection.

In the case of Ethiopia, it is very important to look into the confidence gap that exists between government and citizens – just on account of the lack of trust. When the government claimed bringing down the poverty level to 29 percent at the height of inflation in March 2012, I had expressed this same view. I would have been happier to see poverty go down, not on paper but on the ground.

To begin with, macroeconomic stability is an essential ingredient for that kind of success, which Ethiopia did not have for quite considerable period. By definition, macroeconomic stability is said to be in place, when key economic variables and relationships are in balance. That is to say, the balance between domestic demand and output, the balance of payments (import and exports creating healthier relations between the current and capital accounts), revenue and expenditures and savings and investments, etc.

When such stability is lacking in the economy, the first victims are: economic growth, ordinary citizens, especially Ethiopia’s poor and political sanity. They are victims because the majority of ordinary citizens do not have the capacities the better off have to protect themselves against destruction of incomes by inflation. On account of that, we see in Ethiopia today that ordinary citizens have been hit hard, increasingly being unable to afford their daily meals. When the state becomes insecure, its irrational fears affect everyone, citizens targeted as if they do not have stake in their country’s wellbeing.

The shortage of goods itself has been accelerating Ethiopia’s inflationary spiral, it being evidence of the longstanding imbalance between demand and output and the worsening structural problems. Therefore, the state has chosen a shortcut, costly temporary palliatives. Throughout the years of economic growth, Ethiopia has been compelled to spend its meagre foreign reserves, i.e., hard earned foreign currency from exports, to import wheat and other commodities to fight inflation, instead of goods that facilitate development. This has been happening at least twice a year for the past several years of economic growths. Import of foods has become alibi for increased productivity in the country’s agriculture.

EGTE's import of wheat at Djibouti port

EGTE’s import of wheat at Djibouti port

Last October, the General Manager of the Ethiopian Grain Trade Enterprise (EGTE) Berhane Haile told WIC that he was spending ETB 5.2 billion to purchase from farmers grains, pulses and oilseeds.

In fact, the import of wheat is reported on Ethiopian media as if it were harvest from the farms and sign of our country’s economic achievement, as the news sometimes show, including this የእህል ዋጋን ለማረጋጋት 850 ሺህ ኩንታል ስንዴ አገር ውስጥ መግባት ጀምሯል, about the import of 850,00 quintals of wheat. Sometimes, the reports include the name of the ships and ports and where even on the high seas.

Meles took it as a fact of national life and he went a step further in institutionalizing it to keep the lid on political problems. In August 2008, before he jumped on land grab on planned arrangements with Saudi Arabia to massively rent out lands the following autumn, he told in an interview with The Financial Times, “[T]he way to help the urban poor is for us, for example, to use the foreign exchange earned by the farmers to buy wheat and we are doing this. We have already bought about 150,000 tonnes [already in spring of 2008] of wheat in Europe and we are distributing it through the market. We completed a contract for another 150,000 tonnes of wheat and that will help us dampen the prices in the urban areas and that’s the way it should be.” Think of this when there is terrible shortage of foreign exchange, as now!

What Ato Berhane Haile of EGTE buys the grains or coffee from the farmers only to turn around and export them to foreign markets. For instance, last October he anticipated to earn ETB 7.7 billion in foreign exchange by selling his local purchases to import wheat and other commodities from foreign markets “to stabilize the market.”

Bear in mind that Ethiopia is the second largest what producer in Sub-Saharan Africa, after South Africa. But the manner in which macroeconomic stability has been handled does not give confidence to believe that it would be possible to get poverty down so significantly in this environment and with bandaid measures. In other words, by implication what this says is that it is possible for any government to hit two targets at the same time even under inflationary conflagrations: economic growth and poverty reduction.

When it comes to the discipline and profession of development or economics, it has been established through different studies undertaken by the World Bank, IMF and other individuals, covering many countries that prove this is unlikely. For instance, one study that has considered numerous data from scores of conditions of growth and what factors and policy measures could be good for the latter. Its findings clearly indicates:

    “Two key factors that appear to determine the impact of growth on poverty are the distributional patterns and the sectoral composition of growth. If the benefits of growth are translated into poverty reduction through the existing distribution of income, then more equal societies will be more efficient transformers of growth into poverty reduction. A number of empirical studies have found that the responsiveness of income poverty to growth increases significantly as inequality is lowered.

    This is also supported by a recent cross-country study that found that the more equal the distribution of income in a country, the greater the impact of growth on the number of people in poverty. Others have suggested that greater equity comes at the expense of lower growth and that there is a trade-off between growth and equity when it comes to poverty reduction.

    A large number of recent empirical studies, however, have found that there is not necessarily such a trade-off and that equity in its various dimensions is growth enhancing.”

We cannot afford to be indifferent to the young perishing in high seas, or suffering somewhere else, after running away from extreme poverty and heavy-handed state. Picture shows Ethiopian remains recovered  from shipwreck on the Yemen side.

We cannot afford to be indifferent to the young perishing in high seas, or suffering somewhere else, after running away from extreme poverty and heavy-handed state. Picture shows Ethiopian remains recovered from shipwreck on the Yemen side.

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*Updated with added materials.

TE – Transforming Ethiopia

One Response to “Ethiopia reviews growth plan: Claim of consistent poverty reduction in inflationary situation less convincing”

  1. Wolde March 9, 2013 at 11:33 #

    First , I would like to thank you for such thoughtful articles .But to reach more audience, having presence in social-media like facebook & twitter helps alot .so please atleast add twitter & facebook address & make your website’s content sharable via different platforms .

    Like

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