Monday, July 22, 2024
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Learning from past experiences, incompetence

It is no secret that most people living in Ethiopia are struggling to keep up with the rising prices brought on by domestic and international events. Inflation has affected even the most robust economies in the world, let alone developing ones.

Prime Minister Abiy Ahmed (PhD) and his administration have repeatedly stated that they do not know how to stop the steady rise in prices, which is a sign of a macroeconomic quagmire that has become overheated. Yet, the Prime Minister appeared before Parliament to warn us that the worst is yet to come; “be prepared,” he advised. The question is: for what must we prepare?

Since Abiy’s ascension to the premiership in 2018, the inflationary pressure has been escalating. Among the numerous promises made was one aimed at stabilizing the ailing economy, primarily by resolving macroeconomic imbalances, reversing acute hard currency shortages, stabilizing prices (which were, in fact, more stable than recent price increases), and reducing unemployment.

Although he has been in office for five years and counting, the majority of his macroeconomic assurances are ephemeral, with less substantive and enduring change on the horizon. Some even deteriorated daily.

Unquestionably, the nation is plagued by a series of obstacles. The COVID-19 pandemic and the global crisis, most recently the Ukraine conflict, have triggered a political and economic crisis that is aggravating the situation. The war in Tigray, which ended a few months ago, drained substantial human and monetary resources.

These issues pose a threat to any new economy, let alone a robust one.

The economy and political climate of Ethiopia have been damaged by incompetence and, on occasion, deliberate actions. Indeed, the supply side of the economy continues to rely heavily on imports. As if to rub salt in the wounds, sabotage and misguided political hostilities have entangled scarce supplies, primarily grains, to spark price disruptions that are already wreaking havoc.

In his speech to the Members of Parliament (MPs) on March 28, 2023, the PM went to great lengths to justify Ethiopia’s poor economy by citing the effects of global crises. Yes, imported inflation could affect the nation if the economy continues to shift toward net importation. In spite of concerns about the dearth of agricultural products, he argued vehemently that wheat exports indicate bumper harvests. The PM alludes to logistical, hoarding, and other issues related to checkpoints at entry points as the reason for the extremely high prices.

For systematic and well-planned solutions to problems such as a lack of hard currency or an error in the productive sector, time-sensitive plans are required.

Currently, circumstances are different and more challenging than they were in the past. We are reliving 2011 as if it were today. This was an important time in Africa, particularly in the north; the Arab Spring was engulfing nations and contributing to the fall of governments, particularly in Tunisia and Egypt.

These nations’ economic issues have affected their political stability, and they continue to work to prevent inflation from worsening. During the Arab Spring, Ethiopia’s overall inflation rate was 33.3 percent.

According to Trading Economics, the Consumer Price Index (CPI) in Ethiopia averaged 137.62 points from 2011 to 2023, with a high of 339.2 points in February 2023 and a low of 64.2 points in December 2011.

In 2018, the inflation rate was 13 percent lower than it was in 2011. From 2013 to 2016, inflation remained in single digits. Inflation was eight percent in 2013, seven percent the following year, nine and a half percent in 2014, and six and a half percent in 2016. These were crucial years in recent Ethiopian history. Under the leadership of then-Prime Minister Hailemariam Dessalegn, popular uprisings, regular strikes, and conflicts were on the rise, which led to his resignation in 2018.

Abiy speaks repeatedly about inheriting a deteriorating economy. However, the situation has worsened in only five years. Since his arrival, the inflationary situation has worsened annually, with an average increase of 22 percent over the past five years.

Even worse, historical data researcher Aaron O’Neill stated in a recent article about Ethiopia on Trading Economics that some statistical projections indicate that the situation in 2018, when inflation was approximately 14 percent, will not be attained until 2027. The Prime Minister appears to be correct in predicting that the worst is yet to come. However, it could also be argued that the government is making life intolerable.

The government has continued to spend and invest a substantial amount of money on whatever it deems important, but its priorities are not always clear. The premier’s enthusiasm is evident when he discusses projects that may have a greater impact on the leisure industry. Last year, he appeared offended when asked about his spending spree and plans to build a new city within Addis Ababa.

He mocked the media for reporting significantly less on the trillion-birr projects underway while lamenting this week that hundreds of road projects require one trillion birr. The matter at hand is urgent. The performance and outcomes of these tourism-oriented projects should be evaluated. Certainly, we need all of the projects that the Prime Minister wants to fund, but it does not appear to be the right time to prioritize them all at once.

A logical statement he could have made to the MPs is that production in the agriculture sector must increase. The expansion of wheat farms could provide relief from distribution sabotage, but this was not part of the process. However, wheat alone is not a panacea. We require more teff, barley, corn, and other grains. There is a need for surplus production and diversification. Only in this manner, via production, could markets be calmed.

Wheat can now be exported, according to the PM, who also criticized farmers for stockpiling in anticipation of price hikes. However, citizens and households do not perceive the PM’s statements to correspond with their realities, frequently asking, “Where is the bumper harvest?” so that they can buy and feed their families with ease. Where are the grains? Where do the grains end up?

The PM warned that a hellish storm was about to strike. He suggests that we should all seek refuge from the impending avalanche of shocks and crises.

The fact that there are a large number of grains and food stocks that are unable to reach markets appears to be related to the biblical account of Joseph. Joseph the Viceroy, Egypt’s second-in-command, advised the Pharaoh to store grain during the first seven years of plenty in preparation for the subsequent seven years of famine.

As he referred to the MPs, we should hope that the prime minister is not imagining Joseph’s dreams after seven years of adversity. If this were not the case, we would not have been starving in times of plenty.

To draw a logical parallel with real-world events, the majority of Ethiopians are patiently waiting for the government to fix the economy, which is causing unrest in Kenya.

The cost of living is increasing, inflation is worsening, there is a lack of affordable housing and transportation options, public funds are being mismanaged, etc. These are a few of the factors contributing to the government’s rising debt.

What is occurring in Kenya could serve as a wake-up call, much like the Arab Spring did for Ethiopia’s former leadership. During that time, the government was intent on implementing administrative measures such as price caps, but it was unable to resolve the economic problems. Before it is too late to resolve the agonizing crisis, which some analysts have dubbed “the mother of all crises,” the government must face the facts and be prepared to act accordingly.

Contributed by Birhanu Fikade

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