Friday, August 19, 2022
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    The case for inclusive growth

    As is customary for successive Ethiopian governments the current administration of Prime Minister Abiy Ahmed (PhD) has painted a rosy picture regarding the trajectory of the Ethiopian economy since he came to power in April 2018. This week the State Minister of the Ministry of Finance said the Ethiopian economy has been exhibiting a remarkable performance over the past few years despite experiencing the multiple shocks. According to the State Minister, in spite of both domestic and international challenges in the form of the COVID-19 pandemic, global economic slowdown, the locust invasion, and ongoing law enforcement operation in the northern part of the country, the economy remained resilient and on a stable and promising path. He attributed the success to the implementation of the homegrown economic reform whose major objective, he said, is achieving macroeconomic stabilization. He remarked that since the government began undertaking the broad-based reform impressive gains have been made in improving agricultural activity, export revenue, balance of payment and easing the debt burden.

    Ethiopia has been one of the top-performing economies of the world for over a decade now, registering nearly a double-digit growth from 2008/2009 to 2018/2019 until it slowed to single digits in the last two years. During this period Ethiopia’s per capita income has risen significantly. At the same time the share of the population living below the national poverty line has declined significantly and life expectancy has risen has increased considerably. The benefits of this rapid growth, though, have not trickled down to the majority of the country’s burgeoning population. The accomplishments on the macroeconomic front do not tell the whole story. With a high prevalence of lived poverty, many Ethiopians continue to suffer from consistent shortages of basic necessities in their daily lives. More than half endure moderate or high levels of poverty, and most describe the government’s performance on economic issues as poor.

    There are a host of factors which have condemned a staggering proportion of Ethiopians to live in absolute poverty. Some of these include chronic unemployment, endemic corruption, political instability, a fast population growth and government inefficiency. The single most important factor, as the government has time and again admitted, is the spiraling inflation. The problem has proven to be insurmountable for decades now notwithstanding the bevy of measures taken by the government. While the hike in the prices of imported basic goods on the international market play a role in stoking inflation, the primary causes have domestic roots. One of the major factors is the dominance of the market by powerful cartels that have the ability to influence the market as they see fit. The inability of both the federal and regional governments to deter actors that actively engage in market distortion; failure to effectively address supply-side constraints with respect to basic commodities; the inexorable rise in the cost of imported goods due to the weakening of the purchasing power of the Ethiopian currency; the long-running crunch in and mismanagement of foreign exchange; the prohibitively high cost of transportation driven in large part by the inefficiency of the logistics sector; and the considerable amount of government revenue allotted to servicing the high level of government borrowing from both domestic and external lenders are other structural problems which have also contributed to the rampant inflation.

    Overshadowed by the political upheaval roiling the country the headwinds buffeting Ethiopia’s economy have the potential to turn into a full-blown crisis if they are not dealt with holistically. This specter can be averted through a systematic and informed approach that helps settle political differences peacefully and seeks enduring solutions to the challenges taking a heavy toll on the economy. Ethiopia is endowed with, among others, a youthful productive force, a large swath of arable land, the largest number of livestock in Africa, a substantial surface and sub-surface water resource, climatic conditions suitable to varied agricultural activities, numerous tourist attractions, and a considerable mineral wealth. It’s unforgivable for a nation possessing such riches to wallow in poverty and be the poster child for aid dependence due to bad governance at the hand of weak, corrupt and incompetent politicians and government bureaucracy. It’s high time to embark on fundamental reforms that galvanize the country’s youth, intellectuals and professionals by rousing them from their torpor. 

    Though the news that Ethiopia continues to tread the path to economic growth is welcome, growth in and of itself is meaningless if it is not inclusive. The public does not care much about statistics unless households across the nation benefit equitably from it. While economic growth always results in some individuals or groups and people prospering more than others, it can be regarded as being inclusive as long as those in the middle and especially the bottom benefit. If, however, a tiny elite stand to get a disproportional share of the national pie the resulting inequality is bound to fester resentment in the poor, thereby engendering social chaos and insecurity. This said it should be understood that inclusive growth does not equate with subsidizing the undeserving for there cannot always be a free lunch. It’s therefore imperative to strike a balance between achieving growth and ensuring that it is equitable. Otherwise, the dividends of the growth that the government has touted will remain a pie in the sky for the vast majority of Ethiopians.

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