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Big political reforms: what about the economy?

In his less than one year stint as Prime Minister of Ethiopian Abiy Ahmed (PhD), 42, has managed to taketheworld by surprise. So much so that most viewed global news networks can’t stop talking about his exploits since he emerged as the leader of his ‘fragile East African country’. In fact, his elevation to the highest office of the government was not only astounding but also least expected. He was not among top political figures in the ruling Ethiopian People’s Revolutionary Democratic Front (EPRDF) since some two years ago.

The premier grabbed even more attention when he hurledin dramatic political reforms as soon as assuming power. He never hesitatedwhen he disband long sustained circles of political kinsmen who for long held great sway in the man sitting in Arat Kilo. He also took it up on himself and his close circle of confidants to remedy most of the long polarized relationship with the opposition. An opposition many of whom had been designatedas terrorist organizations for decades. Hesurely came a longway to fix the perplexing past, met and befriended hardcore opposition leaders in exile and the embrace much of the aggrieved members of society.

Today, many opposition parties and leadership figures are coming back to partake in this newly created political sphere. Essential reforms have kickoff to salvage the reputation of some of the democratic institutions. The justice system and the electoral process are also believed to be beholding some lights from the political reform process. Well, peace agreement with Eritrea, forming most gender-balanced cabinet including appointing women to head strategic ministries such as defense areparts of the crucial reform measuresfrequently discussed.

In fact, the inaugural speech Abiy Ahimed delivered nine month ago, in May,wasacrucial metamorphosis and his appeal for new political dawn in Ethiopia arguably cleared the political aloofness. The political backdrop though superficially eased, still there are deadly clashes reverberatingacross Ethiopia and that perhaps is a crucial pretext for the new administration’s overwhelming focus on politics.  

Surely, the economic environ since after the rise of Abiy Ahmed has seen some changes as well. No doubt, the premier was able to secure windfall gains relieving the acute shortages of hard currency immediately after his appointment; but, a lot remains to be done on the economic front, commentators argue.

In its latest Article IV report, the International Monetary Fund (IMF) has stressed the need to abate both political turbulences and export sector ill performances. Nevertheless, the Fund projected an 8.5 percent growth for the country in Fiscal Year 2018/19. But that depends on “abating the politicaluncertainty and increase financial inflows to temporarily ease external constraints,” IMF writes.

In this regard, the Fund mentioned some early stage reforms reported by the government: “privatizations and opening up of key sectorsto competition and private investmentpose a substantial upside growth potential”.

The Fund also gave reference to the USD three billion the UAE governmentpledged to the leadership of Abiy Ahmed as being decisive in easing the acute hard currency shortages that still persist. In fact, out of the committed fund, USD one billion has already been deposited upfront from the UAE’s Abu Dhabi Fund for Development (ADFD)and into the coffers of the National Bank of Ethiopia (NBE) to help the country catch its breath from the swelling external current account deficits.

In this regard, IMF notes that the export receipts for 2017/18 still languished at USD 2.7 billion owing it mostly to the declining trends of commodity exports and fragile global prices. On top of that, the restrainexercised by authorities in their external borrowings added to the dwindling foreign reserves. Public borrowing has been limited to concessional loans where the likes of the World Bank Group (WBG) will play a big role.

His essential success in appealing to China,during the Forum on China-Africa Cooperation (FOCAC) in Beijing,regarding a debt rescheduling pertaining to the Addis Ababa-Djibouti Railway project was also a well noted outcome for Abiy’sadministration.

Though, China pledged to extend USD 60 billion to Africa as whole tobridge the infrastructural gap, no report indicated that a single head of state came back with actual funds from China’s economic forum in August. Except Abiy who secured repayment schedule extension from ten years to 30 years. Does that mean the USD four billion railway loan will be repackaged as a concessional loan? It is hard to say as Abiy cautiously shunned inquiries regarding the applicable interest rates.  

If there is one thing on the economic front that has gained global attention it is the decision of ExecutiveCommittee of EPRDFwhich announced partial and total privatization of some of giant State owned Enterprises (SoEs) in Ethiopia. Including the national flag carriers, Ethiopian and the Ethiopian Shipping and Logistic Enterprise, many other SoEs are up for partial or full privatization. The stronghold of the government on SoEs seems to be melting down; in the past even in the face of disapproval from the West concerning the controlling and operating of SoEs, the government has largely remained defiant to let go of its precious and money-making enterprises. What is more interesting is the introduction of Public Private Partnerships (PPP) framework which was fast-tracked to start soliciting private investment in sectors like power given the fact that it remained on the shelves for years during the previous administration.

It is also imperative to mention the landmark agreement with WBG that enabledthe later to provide budgetary support to the government for first time in 15 years. The recent accord between the International Finance Corporation (IFC) and the National Bank of Ethiopia (NBE) for global trade financing- a credit support scheme that will warranty importers against possibility of default of Ethiopian banks - and local currency based credit programcould also be seen as a positive step for the leadership. And again, at what costis something which yet to be explained.

Both Abiy and his leadership might have achieved considerable outcomes in the political front. But that is not as considerable from the economic point of view to many commentators. The stated feats actually don’t necessarily guarantee premier’s role in the macroeconomic aspects. Inflation, unemployment, cost of living and food security, the declining global trade and foreign currency shortage, national productivity and the revitalization of agricultural sector are some of the macroeconomic challenges  apparentlyPM Abiy is stillfailing short.

Demis Chanyalew (PhD), a publishedeconomist specializing in the agricultural sector, says the new administration is too much imbibed in politics. He argues the government is overwhelmed by the political rollercoaster, which is far from headingto stability.

Perhaps is therean “Abiynomics” in the making? Well, Demis has a different outlook.

“Collectively, we are too much focused in our politics; we have actually ignored the economic dimension toour problems. I think, the real attention that the economy deserves to get from the top leadership the country is not yet happening,”Demise told The Reporter. In fact he views the government as extremely fragile and exposed to external influences. He argues that homegrown economic strategies and policies have lost grounds. “Believe it or not we are extremely exposed toexternal influences and recommendations and that couldentail serious repercussions”.

Demisis convinced that policy prescriptions are,in fact, becoming a hurdleto the new administration and that it has to be taken seriously.   

Getachew Asfaw, another published and regular contributing economist,somehow buys the idea that the leadership of Abiy is yet tointroducea clear economic reform and policies path to Ethiopia. “It is hard to say the PM has come out with a long term economic plan. Perhaps, he is busying himself on calming the economic situation. We don’t see a clear departure from the old economic system,” Getachewargues. Even the privatization measure, according to the expert, is a point of debate among fellow economists.

For Getachew one concrete policy issue that deserves attention is balancing productivity of labor with income. In his point of view, more people in Ethiopia are earning far more for far less productivity in their respective works. He says the country is losing significantly due to the mismatch between income and productivity.    

Nevertheless, for Getachew the opposition as well lacks a clear and reliable policy recommendation with regard to economic management. According to Getachew, the opposition as well is nestingin the ideological debate between liberal and social democracy and how either of the two could beindispensableto the country’s economy. “Although highly debatable, liberal democracy and by extension liberal economic couldbe one alternative.However, the notion of introducing social democracy, asproliferated by some opposition groups, simply doesn’t make any sense to Ethiopia’s agrarian economy employees some 80 percent of the population,” Getachew says. Introduction of a welfarist state like that of Sweden willnot work for Ethiopia at this time, Getachew argues.

Aside from stimulating remittances, the PM is calling on the diaspora communityfor voluntary contributions to development of their nation. Seemingly, the idea was welcomed and a Diaspora Trust Fund was formed to mobilize and handle the fund. A dollar a day contribution was the least the diaspora could donate.

To his frustrations, seven months in, only USD 500, 000 was earmarked until he openly criticized the diaspora for failed promises. Current figures suggest that USD one million has been contributed via the Fund, so far. An estimated three million diaspora makes a living scattered across countries. Had one million out of the three million diaspora contributed a dollar a day, at least USD 200 million would have been channeled to the trust fund by now.  

In a nutshell, such initiatives are far from economic policies, the likes of Getachew and Demis argue. Getachew claims that both Abiy’s leadership and the previous administration equally lacked emphasis to macroeconomic managements of the country. “The developmental state model the country tried for years has never been keen in properly managing the macroeconomic sector,” Getachew says. And he recommends high level leaders to focus on macroeconomic matters than buzzing on “project management”. 

That said, back in September, the National Plan Commission in alliance with the Ethiopian Development Research Institute (EDIR) held a consultative meeting to publicize macroeconomic policyreforms in the making. In the coming ten years, the country will see considerable changes in the agriculture, industry and service sectors along with its fiscal and monetary policies, according to experts at this meeting.

What exactly would these policies look like? They are yet to be reviled. The authorities say that macroeconomic reforms are in the making. If the political reforms are something to by, radical economic plans might be on the horizon; perhaps fitting the terms “Abiynomics”.