Ethiopia's New Plan: Let them Eat GDP!
25 September, 2010 | By Wondemhunegn Ezezew
---------------------------------------------------------------------------------
“He who oppresses the poor to make more for himself or
who gives to the rich, will only come to poverty.”
Proverbs 22:16
Ethiopia has recently announced its new five year economic plan
dubbed as Growth and Transformation Plan (GTP) which details
the main economic performance targets and goals as well as the key
strategies to be followed in achieving those targets by 2015.
The sum and substance of the new GTP includes, among others, the
following general objectives: ensuring fast, sustained, and equitable
economic growth; raising the productivity level of the agricultural
sector as it remains to be the main source of overall economic
expansion; expanding infrastructure (roads, rail networks, hydro
electric power generating dams, etc); improving the quality and
quantity of basic social services such as access to education and
clean water; encouraging competition-driven import substitution
industries; creating an industrial-led export sector that plays a critical
role in reviving the country’s economy; reducing poverty and
combating unemployment by ensuring swift, sustained and equitable
economic growth over the coming five years.
More specifically, the new GTP sets a number of overambitious
quantitative targets such as ensuring 100 percent national coverage
in the provision of basic social services and utilities like access to
safe drinking water, primary education, health, and electricity by
2015, which coincides with the deadline of the MDG initiative.
On the macroeconomic sphere, the plan aims to increase the share
of the industrial sector (based on the base line scenario) from the
current 13 percent of GDP to 19 percent in the year 2015. Under
the same growth scenario, aggregate consumption as a share of
output will fall from around 90 to 83 percent, gross fixed capital
formation (investment) will rise from 24 to 32 percent, and total
domestic saving will shoot up from 9 to 17 percent during the same
period, all measured as percentage of GDP.
It is important to note that during the PASDEP period (2005-
2010), “fast and sustained” were the buzzwords that preceded
every description of the Ethiopian economy. It is encouraging to see
that under the new GTP “equity” has been included as one of the
key issues of government focus even though it is not clear how the
benefits from the expected growth will be equitably distributed
among the population.
It is also important to note there are many inconsistent assumptions,
projections and extrapolations as one carefully probes one’s way
between the lines in the GTP document prepared for public
discussion. For instance, after so much flaunting about the efforts to
be made in order to encourage import-substitution and the focus on
industry-led export promotion, the country’s resource gap (the
trade deficit) refuses to budge but by a couple of percentage points
five years later.
The 100 percent target for electricity coverage is still another proof
that symbolizes the classical insouciance and lack of serious
deliberation among Ethiopian lawmakers and policy designers who
are supposed to carefully assess several parameters before writing
and approving the plan. The Ethiopia I know is fraught with rugged
mountains; annoying gorges and deep valleys; remote, scattered and
inaccessible villages and settlements. Highland Ethiopia, which is
inhabited by 80 to 90 percent of the population, poses a great
challenge when it comes to building infrastructure facilities. I am not
being a wet blanket, but given the difficult geographical barriers and
the massive capital requirements, even electrifying the entire Amhara
region within five years will be a formidable task, let alone achieve
full coverage at national level.
Furthermore, it is stated in the plan that total domestic saving will
rise from a minuscule 9 percent of GDP in 2010 to 17 percent after
five years. The plan also clearly states that the government will run
budget deficits on the order of 3 percent of GDP by the end of the
programme, which means that it will spend more than what it
collects from taxation and other state sources of revenue. Given the
government’s position as a net borrower, most of the expected
improvement in domestic saving must come from the private sector,
which, at present, is virtually hermetically dominated by party
controlled business entities disguised as private companies and
enterprises that control the commanding heights of the Ethiopian
economy from the export of coffee and sesame to construction and
insurance. To preach about private sector development, increased
savings from individuals, households and firms on the one hand and
refusing to level the economic playing field by dissolving the
politically connected illegal companies on the other hand, is simply a
contradiction in terms. You do not control multi-billion-dollar worth
parastatals that enjoy unfair political favour and talk about an
economy driven by free competition and entrepreneurial creativity.
To mention but a final example on the inconsistent assumptions and
projections, the new GTP also declares that the number of people
living below the national poverty line in Ethiopia will decline from the
current 29.2 percent (estimated) to 22.2 percent by the end of the
programme implementation period. Currently the population of
Ethiopia stands at about 80 million, which leads us to conclude that
at the moment some 23 million Ethiopians find it extremely difficult
to make both ends meet. Other things equal, assuming that the
population continues to grow at the current rate of 3 percent per
annum, we will grow to reach 93 million five years down the line, at
which point the number of people living in abject poverty will be 20
million (22.2 percent of 93).
Now one may rightly ask these important questions: what or whom
does transform the so called Growth and Transformation Plan? We
are told that Ethiopia is going to make itself food self-sufficient, with
all its citizens having full access to electricity and safe drinking water
by the end of the new GTP period. Moreover, the food poverty line
produces the same result as the national general poverty line (in both
cases 29 percent of the population live in absolute poverty as of
2010). If the new GTP enables Ethiopia to ensure national food-
sufficiency after five years, how is it that 20 million people will still
remain trapped below the official line of extreme poverty after
implementing the plan?
Growth is not all
Soon after the announcement of the new GTP by the government,
many reacted quickly and ridiculed the plan, saying it is
overambitious, unrealistic and pure fantasy. Some even went further
to claim that the sky-high performance targets set in the new plan
were deliberate political calculations designed to switch public
attention and resentment away from the May 2010 electoral farce,
which gave the ruling party a complete sweep in the federal
parliamentary contest.
There were also some folks who tried to dilute the real issues on the
table by making gratuitous reference to methodological and
technical intricacies in regard to data measurement and economic
forecast as if artificial econometric models were a substitute for the
complex ebbs and flows of real world economy. These guys seem
to forget that econometric forecasting is neither good nor bad
approximation of reality. Too often, even after incorporating
hundreds and thousands of variables into their forecast function,
econometricians would disconcertedly tell you that their model does
not capture the entire relationship in relation to the variable of
interest (say GDP), making it necessary to complement a significant
portion of their forecasting with expert judgment, statistical analysis
and evaluation of the prevailing and future socio-economic and
political environment.
This is not to play down the significance of the level of prudence
needed in ensuring the appropriateness of the chosen model or
verifying the reliability of the information incorporated into it. Rather
it is to point out that the real issue should be whether or not the so
called growth is benefiting the majority of Ethiopians, and not
whether or not the right methodologies or models are applied in the
growth forecasting process, which is an intellectual luxury that does
not help the average Ethiopian who is homeless, hungry or
marginalized. This is because, at the end of the day, despite all the
ivory-tower vanity and arrogance, the whole issue eventually boils
down to a condensed and straightforward refrain: how many people
and how much money?!
In fact, true economists do understand that economics is an art, not
a science. It cannot and should not be seen detached from the
quotidian actions, behaviour, and intractable human psychology,
which make future forecasting all the more difficult. Otherwise, with
so much sophistication and advancement in the field of economic
forecast, how come economists and econometricians failed to
predict the exact magnitude of the current economic crisis in the US,
for instance, which led to millions of job loses and foreclosures, and
devastating erosion of household assets and life-long pension
savings, at a level unheard of since the Great Depression of the
1930s? Why it is that no one took some proactive measures to
prevent such tragedy from happening or conjure up a few magic
formulae to clear the messes in the aftermath of the economic
debacle?
The economic soothsayers out there have no definite and convincing
answers to these questions; and by bringing in their misplaced
econometric crystal ball to the scene, not only they distract attention
from real issues but also show their bizarre insensitivity to the pain
and suffering of their own people. Thus, these party apparatchiks
and charlatans (who bring in irrelevant methodological issues hiding
behind a veil of self-serving diatribes), cannot persuasively explain
why a government in power for twenty years is even unable to feed
its own subjects because they devote their entire soul to defend the
flawed economic philosophy of an irresponsible regime, not to voice
the concerns of millions of their fellow compatriots who have been
suffering the rough ends of economic injustice and political
repression under the very regime they ardently defend and support.
Genuine economists read both statistics and human faces. Noble
Economic Laureate Joseph Stiglitz is one of them. Stiglitz, a firm
believer in human-oriented markets and a vocal critic of “corporate
welfare” in the US, once visited China and penned his observation
beautifully which reads as follows: “the old economic model has
been a resounding success, producing almost 10% annual growth
for 30 years and lifting hundreds of millions of Chinese out of
poverty. The changes are apparent not only in the statistics, but
even more so in the faces of the people that one sees around the
country.”
Now take a brief recess, flip over the pages that read the official
statistics about the ‘unprecedented’ nearly decade-long double digit
economic growth that we are heavily bombarded with on a daily
basis; then look at the wretched faces of tens of millions of
Ethiopians and enjoy the contradictions.
Of course, no one in his right mind would argue that growth is not
important; because without growth it would be impossible to make
meaningful progress in mitigating poverty and combating
unemployment. Economic growth is a self-reinforcing phenomenon:
high growth entails high employment, which in turn leads to
increased spending on goods and services resulting in higher
investment and business expansion. Rapid business expansion
broadens the tax base for the government, which will be able to
raise enough funds to finance the construction of quality roads,
bridges, power dams as well as schools and universities, all of which
contribute to further growth by lowering transportation and other
transaction costs, as well as by providing the business community
with competent and skilled manpower whose training is paid for
from state coffers.
But, it would also be wrong to argue that growth as measured by
GDP will solve the myriad social and economic ills that
indiscriminately engulf our society from north to south and from west
to east. In fact, at times, it can make things worse.
Gross domestic product (GDP) is the monetary value of all
transactions in finished goods and services produced within the
geographical boundaries of a country during a particular period of
time, usually a year. It includes individual and household spending
on consumption; government expenditures on salaries and capital
goods; business investment spending and our net export.
GDP counts all the money that the government spends on
unscrupulous projects such as the purchase of lobbying services
from DLA piper or the money used to finance the invasion of
Somalia. It does not, however, consider the loss of Ethiopian
soldiers who perish in the deserts of Somalia fighting for
superpower interests or the suffering of 80 million people under an
autocratic rule whose legitimacy emanates from“lobbyocracy.”
The conscious destruction of forests in Gambela and the increase in
farm production by export-oriented foreign investors doing business
in Ethiopia are both included in the country’s total gross domestic
product. But GDP fails to appreciate the environmental degradation
or resource depletion that occurs as a result of such forest-clearing
activities. Nor does it take into account the economic hardships that
befall the various indigenous people of Ethiopia who are heartlessly
being evicted from their ancestors’ land just to favour the greedy,
immoral, and profit-sniffing global agri-businesses.
Gross domestic product includes the profits of sugar and chemical
treatment firms but it does not account for the pollution of rivers
where these firms dispose of their harmful wastes nor does it
calculate the health costs and risks resulting from such water
pollution and chemical contamination.
What is more, ill-conceived, poorly designed and recklessly-built
roads through tourist destination landscapes such as the Semen
Mountains National Park are heralded as an expansion in economic
growth but the long-term ecological and aesthetic implications of
such roads on the future tourism industry of the nation are
downplayed or completely ignored.
Thus, GDP does not precisely tell us whether the majority are
benefiting from its sustained increase or whether people are losing
their only livelihood because of poor judgements made when the
interests of foreigners take precedence over the protection of the
fundamental rights of citizens for a decent life. It does not reflect the
instability in our society, the lack of solidarity among our people and
the existence of pervasive and increasing wealth and income
inequality between individuals, households and regions.
As author and sustainable future campaigner John Robbins
forcefully put it in his recent article: “It [GDP] does not include the
beauty of our poetry or the strength of our marriages, the
intelligence of our public debate or the integrity of our public
officials. It measures neither our wit nor our courage, neither our
wisdom nor our learning, neither our compassion nor our devotion
to our country. It measures everything, in short, except that which
makes life worthwhile.”
So, we are told that Ethiopia’s GDP will double in five years under
the new growth and transformation plan. Who cares even if it triples
or quadruples by 2015?
The United States, the world’s biggest economy, is a good example
that illustrates the curse of economic growth as measured by GDP.
Sitting on the top of the global list with a total GDP valued at $15
trillion, the US is a place where 50 million Americans (17% of the
population) cannot afford to put basic food items on their table.
Hundreds of thousands of Americans are homeless, and the US has
one of the highest levels of income inequalities in the world, with the
richest top one percent of the population controlling nearly 50
percent of the national income.
A seminal study conducted by California University professor
Emmanuel Suez shows a startling result: between 1993 and 2008
real household income in the US grew by 1.3 percent annually,
which amounts to a 20 percent cumulative growth over the 15 year
period under investigation. During this period, the income of the top
one percent increased by 3.9 percent per annum, a total of nearly
80 percent increase in fifteen years; while the income growth of the
bottom 99 percent teetered at around 0.75 percent yearly,
representing a cumulative growth of only 12 percent over the one
and a half decade period. This indicates that the top 1 percent
amassed nearly half of the overall income growth between 1993 and
2008. But GDP does not reveal such mysteries.
So much for the virtues of unfettered capitalism and America’s
brand of rugged individualism. The good news is that recently we
are witnessing Ethiopian officials mercilessly waging a series of well-
coordinated assaults against the American philosophy of laissez faire
economy. Though we may question the (political) motives behind
such move, the anti-neoliberal crusade is a good start in the right
direction.
Markets constitute the corner stone for every vibrant economy; yet
unrestrained market economy, as embodied by the US, is a recipe
for social disaster by allowing tiny economic elite to unfairly gather
much wealth at the expense of the majority of the population. This
brings us back to the central theme of the article: mere economic
growth driven by the mysterious forces of the market will do little to
help reduce the ubiquitous poverty that the nation finds itself in.
Thus, the government has great national duty and responsibility to
ensure that the benefits of economic growth do not “trickle up” to a
handful of business and political elites and professionals.
I have mentioned it twice or thrice some where else in the past. And
I will mention it here once again: a path of growth and development
which never attempts to articulate specific programmes and
strategies to support the farming and pastoral communities in
Ethiopia can hardly make any progress either in eradicating absolute
poverty or raising the standard of living of the citizenry.
Consider the agricultural sector, for instance. The incumbent regime
has always tried to defend its agricultural-led economic policies and
strategy, saying agriculture is the mainstay of the Ethiopian economy
and that it should receive the greatest possible attention and the
strongest support in line with the resource capacity of the nation.
The key reason that underpins such philosophy is that by raising the
level of income and improving the purchasing power of the vast
agrarian community, it is possible to create strong domestic demand
for manufactured goods, thereby creating a two-way linkage
between agriculture and industry.
In reality, however, this government has played a leading role in
perpetuating rural poverty in Ethiopia by exploiting the peasantry
more ruthlessly than any other government in our history.
During the master-slave-relationship system of the feudal era, it was
the landlords, aristocrats and the royal family members who owned
the land and extracted the annual harvests from the tenant leaving
him with an insignificant portion of the cereal harvested for his
survival. If drought or some other natural disaster destroyed the
tenant’s farm, his master would magnanimously terminate the
peasant’s obligation for the year and no arrears would be recorded
in the landlords’ books for future settlement.
The story is more repulsive and unexplored when it comes to
tenancy under this government. The aristocrats have been
supplanted by political and business oligarchs who work together to
enrich themselves using the farmer as the surest and quickest source
of their windfall. They urge, and sometimes hoax the farmer, into
applying fertilizer, improved seeds and other farm inputs, saying it
would increase his production as well as productivity. Certainly his
farm output increases dramatically after using these inputs, but the
farmer does not have the right to retain the extra output which has to
be sold and forwarded to the “fertilizer lords” who happen to be
politically connected distributors, traders and creditors. Every year
production increases in this way, the officials at Ethiopia’s Central
Statistical Authority report it as “unprecedented growth,” but they
do not tell us it is the income and wealth of few fertilizer lords that
shoots up by leaps and bounds. Life for the average Ethiopian
farmer remains hard and unbearable.
The agricultural revolution that Meles and company are obsessed
with is a revolution of renewed commitment to prolong rural poverty
and condemn the majority of peasants to increased misery and
suffering. Under the feudal era, tenants paid tributes out of their
produce. If locusts invaded their farms and nothing was harvested in
the process, the landlords were “kind enough” not to claim
outstanding obligations for failed crop seasons. In today’s Ethiopia
farmers are forced to remove the corrugated iron from their roofs,
sell their only ox or migrate to towns, cities and cash crop producing
regions to work as daily labourers in order to clear their fertilizer
debt owed to the government or government guaranteed creditors.
Unless something is done to reverse this exploitive system, no
meaningful reduction in poverty can be achieved. And the
government’s dream of using the agricultural sector as stepping
stone for grand industrial development in Ethiopia will remain a pipe
dream.
It is straightforward and logical. If you give Mr. X fertilizer to
expand his farm, and each year you come and collect the increased
output, there is no way that Mr. X will become financially
independent. There is no way that he will increase his savings and
demand for manufactured goods. There will not be such thing as
creating an industrial consumer society out of rural Ethiopia so long
as the government is not ready to take serious supportive measures
to increase rural income and savings. It only takes political will and
about half billion dollars a year for the subsidies (which is roughly
the c.i.f value of our fertilizer import in 2009). After all, 90 percent
of the country’s export revenue is generated from agriculture and
commonsense dictates that the farmers should be the primary
beneficiaries of their efforts—a good portion of this revenue must be
used to subsidize household fertilizer consumption.
Malawi has shown us how a government can do the trick when it
invests in its farmers by providing them with hybrid seeds and
fertilizer free of charges. Of course, exaggeration of production,
confounding bureaucracy, corruption and the use of subsidies for
political advantages are inevitable, problems which could be tackled
with increased transparency and accountability in public resource
allocation and administration. Moreover, efforts to liberalize the
rural land market in Ethiopia (if necessary to be complemented by
imposing a ceiling on the size of landownership to prevent feudal
style land concentration) can further help improve efficiency by
enabling the exploitation of economies of scale. Government
financial support coupled with land tenure security will embolden
farmers to invest more time, energy and resources in soil
conservation and sustainable land management efforts.
Ethiopia’s problems are so many and so complex—a great deal of
them historical—that I do not blame Prime Minister Meles Zenawi
for failing to make Ethiopia an industrial powerhouse over the past
two decades of his rule. But given the relative peace and the
enormous aid money pumped into the country since 1991, he is fully
responsible for failing to fulfill his pledge of three meals a day for
every Ethiopian.
The new GTP flamboyantly declares that Ethiopia will be food self-
sufficient in the coming five years. If it is business as usual, the new
five year economic plan will be another cheap propaganda and
nothing positive will come out it. If we see some detailed
programmes to subsidize household farming at micro level, then it
will be possible not only to ensure food security at national level but
also to create an economically capable rural society with increased
income and savings that could propel industrial expansion through
investment and spending on manufactured goods.
Eradicating extreme poverty or achieving full national food security
in Ethiopia is not an impossible task; it only takes bold leaders who
look beyond their narrow ethnic world view coupled with
nationalizing the fertilizer market temporarily, say for five or six
years; liberalizing the land market (with a ceiling on maximum
number of hectares for individual ownership to prevent excessive
concentration); tackling the population explosion problem; creating
an efficient banking/financial system to effectively mobilize
resources, build savings and allocate these resources to productive
sectors of the economy; tightening the floodgates at Ethiopia’s Birr
printing press (less power to the monetary authorities at the National
Bank of Ethiopia), and above all dismantling all the illegal party-
owned companies which distort competition and discourage
innovation. Anything less is simply tantamount to saying: let them eat
GDP!
For comments bishangary@yahoo.com
25 September, 2010 | By Wondemhunegn Ezezew
---------------------------------------------------------------------------------
“He who oppresses the poor to make more for himself or
who gives to the rich, will only come to poverty.”
Proverbs 22:16
Ethiopia has recently announced its new five year economic plan
dubbed as Growth and Transformation Plan (GTP) which details
the main economic performance targets and goals as well as the key
strategies to be followed in achieving those targets by 2015.
The sum and substance of the new GTP includes, among others, the
following general objectives: ensuring fast, sustained, and equitable
economic growth; raising the productivity level of the agricultural
sector as it remains to be the main source of overall economic
expansion; expanding infrastructure (roads, rail networks, hydro
electric power generating dams, etc); improving the quality and
quantity of basic social services such as access to education and
clean water; encouraging competition-driven import substitution
industries; creating an industrial-led export sector that plays a critical
role in reviving the country’s economy; reducing poverty and
combating unemployment by ensuring swift, sustained and equitable
economic growth over the coming five years.
More specifically, the new GTP sets a number of overambitious
quantitative targets such as ensuring 100 percent national coverage
in the provision of basic social services and utilities like access to
safe drinking water, primary education, health, and electricity by
2015, which coincides with the deadline of the MDG initiative.
On the macroeconomic sphere, the plan aims to increase the share
of the industrial sector (based on the base line scenario) from the
current 13 percent of GDP to 19 percent in the year 2015. Under
the same growth scenario, aggregate consumption as a share of
output will fall from around 90 to 83 percent, gross fixed capital
formation (investment) will rise from 24 to 32 percent, and total
domestic saving will shoot up from 9 to 17 percent during the same
period, all measured as percentage of GDP.
It is important to note that during the PASDEP period (2005-
2010), “fast and sustained” were the buzzwords that preceded
every description of the Ethiopian economy. It is encouraging to see
that under the new GTP “equity” has been included as one of the
key issues of government focus even though it is not clear how the
benefits from the expected growth will be equitably distributed
among the population.
It is also important to note there are many inconsistent assumptions,
projections and extrapolations as one carefully probes one’s way
between the lines in the GTP document prepared for public
discussion. For instance, after so much flaunting about the efforts to
be made in order to encourage import-substitution and the focus on
industry-led export promotion, the country’s resource gap (the
trade deficit) refuses to budge but by a couple of percentage points
five years later.
The 100 percent target for electricity coverage is still another proof
that symbolizes the classical insouciance and lack of serious
deliberation among Ethiopian lawmakers and policy designers who
are supposed to carefully assess several parameters before writing
and approving the plan. The Ethiopia I know is fraught with rugged
mountains; annoying gorges and deep valleys; remote, scattered and
inaccessible villages and settlements. Highland Ethiopia, which is
inhabited by 80 to 90 percent of the population, poses a great
challenge when it comes to building infrastructure facilities. I am not
being a wet blanket, but given the difficult geographical barriers and
the massive capital requirements, even electrifying the entire Amhara
region within five years will be a formidable task, let alone achieve
full coverage at national level.
Furthermore, it is stated in the plan that total domestic saving will
rise from a minuscule 9 percent of GDP in 2010 to 17 percent after
five years. The plan also clearly states that the government will run
budget deficits on the order of 3 percent of GDP by the end of the
programme, which means that it will spend more than what it
collects from taxation and other state sources of revenue. Given the
government’s position as a net borrower, most of the expected
improvement in domestic saving must come from the private sector,
which, at present, is virtually hermetically dominated by party
controlled business entities disguised as private companies and
enterprises that control the commanding heights of the Ethiopian
economy from the export of coffee and sesame to construction and
insurance. To preach about private sector development, increased
savings from individuals, households and firms on the one hand and
refusing to level the economic playing field by dissolving the
politically connected illegal companies on the other hand, is simply a
contradiction in terms. You do not control multi-billion-dollar worth
parastatals that enjoy unfair political favour and talk about an
economy driven by free competition and entrepreneurial creativity.
To mention but a final example on the inconsistent assumptions and
projections, the new GTP also declares that the number of people
living below the national poverty line in Ethiopia will decline from the
current 29.2 percent (estimated) to 22.2 percent by the end of the
programme implementation period. Currently the population of
Ethiopia stands at about 80 million, which leads us to conclude that
at the moment some 23 million Ethiopians find it extremely difficult
to make both ends meet. Other things equal, assuming that the
population continues to grow at the current rate of 3 percent per
annum, we will grow to reach 93 million five years down the line, at
which point the number of people living in abject poverty will be 20
million (22.2 percent of 93).
Now one may rightly ask these important questions: what or whom
does transform the so called Growth and Transformation Plan? We
are told that Ethiopia is going to make itself food self-sufficient, with
all its citizens having full access to electricity and safe drinking water
by the end of the new GTP period. Moreover, the food poverty line
produces the same result as the national general poverty line (in both
cases 29 percent of the population live in absolute poverty as of
2010). If the new GTP enables Ethiopia to ensure national food-
sufficiency after five years, how is it that 20 million people will still
remain trapped below the official line of extreme poverty after
implementing the plan?
Growth is not all
Soon after the announcement of the new GTP by the government,
many reacted quickly and ridiculed the plan, saying it is
overambitious, unrealistic and pure fantasy. Some even went further
to claim that the sky-high performance targets set in the new plan
were deliberate political calculations designed to switch public
attention and resentment away from the May 2010 electoral farce,
which gave the ruling party a complete sweep in the federal
parliamentary contest.
There were also some folks who tried to dilute the real issues on the
table by making gratuitous reference to methodological and
technical intricacies in regard to data measurement and economic
forecast as if artificial econometric models were a substitute for the
complex ebbs and flows of real world economy. These guys seem
to forget that econometric forecasting is neither good nor bad
approximation of reality. Too often, even after incorporating
hundreds and thousands of variables into their forecast function,
econometricians would disconcertedly tell you that their model does
not capture the entire relationship in relation to the variable of
interest (say GDP), making it necessary to complement a significant
portion of their forecasting with expert judgment, statistical analysis
and evaluation of the prevailing and future socio-economic and
political environment.
This is not to play down the significance of the level of prudence
needed in ensuring the appropriateness of the chosen model or
verifying the reliability of the information incorporated into it. Rather
it is to point out that the real issue should be whether or not the so
called growth is benefiting the majority of Ethiopians, and not
whether or not the right methodologies or models are applied in the
growth forecasting process, which is an intellectual luxury that does
not help the average Ethiopian who is homeless, hungry or
marginalized. This is because, at the end of the day, despite all the
ivory-tower vanity and arrogance, the whole issue eventually boils
down to a condensed and straightforward refrain: how many people
and how much money?!
In fact, true economists do understand that economics is an art, not
a science. It cannot and should not be seen detached from the
quotidian actions, behaviour, and intractable human psychology,
which make future forecasting all the more difficult. Otherwise, with
so much sophistication and advancement in the field of economic
forecast, how come economists and econometricians failed to
predict the exact magnitude of the current economic crisis in the US,
for instance, which led to millions of job loses and foreclosures, and
devastating erosion of household assets and life-long pension
savings, at a level unheard of since the Great Depression of the
1930s? Why it is that no one took some proactive measures to
prevent such tragedy from happening or conjure up a few magic
formulae to clear the messes in the aftermath of the economic
debacle?
The economic soothsayers out there have no definite and convincing
answers to these questions; and by bringing in their misplaced
econometric crystal ball to the scene, not only they distract attention
from real issues but also show their bizarre insensitivity to the pain
and suffering of their own people. Thus, these party apparatchiks
and charlatans (who bring in irrelevant methodological issues hiding
behind a veil of self-serving diatribes), cannot persuasively explain
why a government in power for twenty years is even unable to feed
its own subjects because they devote their entire soul to defend the
flawed economic philosophy of an irresponsible regime, not to voice
the concerns of millions of their fellow compatriots who have been
suffering the rough ends of economic injustice and political
repression under the very regime they ardently defend and support.
Genuine economists read both statistics and human faces. Noble
Economic Laureate Joseph Stiglitz is one of them. Stiglitz, a firm
believer in human-oriented markets and a vocal critic of “corporate
welfare” in the US, once visited China and penned his observation
beautifully which reads as follows: “the old economic model has
been a resounding success, producing almost 10% annual growth
for 30 years and lifting hundreds of millions of Chinese out of
poverty. The changes are apparent not only in the statistics, but
even more so in the faces of the people that one sees around the
country.”
Now take a brief recess, flip over the pages that read the official
statistics about the ‘unprecedented’ nearly decade-long double digit
economic growth that we are heavily bombarded with on a daily
basis; then look at the wretched faces of tens of millions of
Ethiopians and enjoy the contradictions.
Of course, no one in his right mind would argue that growth is not
important; because without growth it would be impossible to make
meaningful progress in mitigating poverty and combating
unemployment. Economic growth is a self-reinforcing phenomenon:
high growth entails high employment, which in turn leads to
increased spending on goods and services resulting in higher
investment and business expansion. Rapid business expansion
broadens the tax base for the government, which will be able to
raise enough funds to finance the construction of quality roads,
bridges, power dams as well as schools and universities, all of which
contribute to further growth by lowering transportation and other
transaction costs, as well as by providing the business community
with competent and skilled manpower whose training is paid for
from state coffers.
But, it would also be wrong to argue that growth as measured by
GDP will solve the myriad social and economic ills that
indiscriminately engulf our society from north to south and from west
to east. In fact, at times, it can make things worse.
Gross domestic product (GDP) is the monetary value of all
transactions in finished goods and services produced within the
geographical boundaries of a country during a particular period of
time, usually a year. It includes individual and household spending
on consumption; government expenditures on salaries and capital
goods; business investment spending and our net export.
GDP counts all the money that the government spends on
unscrupulous projects such as the purchase of lobbying services
from DLA piper or the money used to finance the invasion of
Somalia. It does not, however, consider the loss of Ethiopian
soldiers who perish in the deserts of Somalia fighting for
superpower interests or the suffering of 80 million people under an
autocratic rule whose legitimacy emanates from“lobbyocracy.”
The conscious destruction of forests in Gambela and the increase in
farm production by export-oriented foreign investors doing business
in Ethiopia are both included in the country’s total gross domestic
product. But GDP fails to appreciate the environmental degradation
or resource depletion that occurs as a result of such forest-clearing
activities. Nor does it take into account the economic hardships that
befall the various indigenous people of Ethiopia who are heartlessly
being evicted from their ancestors’ land just to favour the greedy,
immoral, and profit-sniffing global agri-businesses.
Gross domestic product includes the profits of sugar and chemical
treatment firms but it does not account for the pollution of rivers
where these firms dispose of their harmful wastes nor does it
calculate the health costs and risks resulting from such water
pollution and chemical contamination.
What is more, ill-conceived, poorly designed and recklessly-built
roads through tourist destination landscapes such as the Semen
Mountains National Park are heralded as an expansion in economic
growth but the long-term ecological and aesthetic implications of
such roads on the future tourism industry of the nation are
downplayed or completely ignored.
Thus, GDP does not precisely tell us whether the majority are
benefiting from its sustained increase or whether people are losing
their only livelihood because of poor judgements made when the
interests of foreigners take precedence over the protection of the
fundamental rights of citizens for a decent life. It does not reflect the
instability in our society, the lack of solidarity among our people and
the existence of pervasive and increasing wealth and income
inequality between individuals, households and regions.
As author and sustainable future campaigner John Robbins
forcefully put it in his recent article: “It [GDP] does not include the
beauty of our poetry or the strength of our marriages, the
intelligence of our public debate or the integrity of our public
officials. It measures neither our wit nor our courage, neither our
wisdom nor our learning, neither our compassion nor our devotion
to our country. It measures everything, in short, except that which
makes life worthwhile.”
So, we are told that Ethiopia’s GDP will double in five years under
the new growth and transformation plan. Who cares even if it triples
or quadruples by 2015?
The United States, the world’s biggest economy, is a good example
that illustrates the curse of economic growth as measured by GDP.
Sitting on the top of the global list with a total GDP valued at $15
trillion, the US is a place where 50 million Americans (17% of the
population) cannot afford to put basic food items on their table.
Hundreds of thousands of Americans are homeless, and the US has
one of the highest levels of income inequalities in the world, with the
richest top one percent of the population controlling nearly 50
percent of the national income.
A seminal study conducted by California University professor
Emmanuel Suez shows a startling result: between 1993 and 2008
real household income in the US grew by 1.3 percent annually,
which amounts to a 20 percent cumulative growth over the 15 year
period under investigation. During this period, the income of the top
one percent increased by 3.9 percent per annum, a total of nearly
80 percent increase in fifteen years; while the income growth of the
bottom 99 percent teetered at around 0.75 percent yearly,
representing a cumulative growth of only 12 percent over the one
and a half decade period. This indicates that the top 1 percent
amassed nearly half of the overall income growth between 1993 and
2008. But GDP does not reveal such mysteries.
So much for the virtues of unfettered capitalism and America’s
brand of rugged individualism. The good news is that recently we
are witnessing Ethiopian officials mercilessly waging a series of well-
coordinated assaults against the American philosophy of laissez faire
economy. Though we may question the (political) motives behind
such move, the anti-neoliberal crusade is a good start in the right
direction.
Markets constitute the corner stone for every vibrant economy; yet
unrestrained market economy, as embodied by the US, is a recipe
for social disaster by allowing tiny economic elite to unfairly gather
much wealth at the expense of the majority of the population. This
brings us back to the central theme of the article: mere economic
growth driven by the mysterious forces of the market will do little to
help reduce the ubiquitous poverty that the nation finds itself in.
Thus, the government has great national duty and responsibility to
ensure that the benefits of economic growth do not “trickle up” to a
handful of business and political elites and professionals.
I have mentioned it twice or thrice some where else in the past. And
I will mention it here once again: a path of growth and development
which never attempts to articulate specific programmes and
strategies to support the farming and pastoral communities in
Ethiopia can hardly make any progress either in eradicating absolute
poverty or raising the standard of living of the citizenry.
Consider the agricultural sector, for instance. The incumbent regime
has always tried to defend its agricultural-led economic policies and
strategy, saying agriculture is the mainstay of the Ethiopian economy
and that it should receive the greatest possible attention and the
strongest support in line with the resource capacity of the nation.
The key reason that underpins such philosophy is that by raising the
level of income and improving the purchasing power of the vast
agrarian community, it is possible to create strong domestic demand
for manufactured goods, thereby creating a two-way linkage
between agriculture and industry.
In reality, however, this government has played a leading role in
perpetuating rural poverty in Ethiopia by exploiting the peasantry
more ruthlessly than any other government in our history.
During the master-slave-relationship system of the feudal era, it was
the landlords, aristocrats and the royal family members who owned
the land and extracted the annual harvests from the tenant leaving
him with an insignificant portion of the cereal harvested for his
survival. If drought or some other natural disaster destroyed the
tenant’s farm, his master would magnanimously terminate the
peasant’s obligation for the year and no arrears would be recorded
in the landlords’ books for future settlement.
The story is more repulsive and unexplored when it comes to
tenancy under this government. The aristocrats have been
supplanted by political and business oligarchs who work together to
enrich themselves using the farmer as the surest and quickest source
of their windfall. They urge, and sometimes hoax the farmer, into
applying fertilizer, improved seeds and other farm inputs, saying it
would increase his production as well as productivity. Certainly his
farm output increases dramatically after using these inputs, but the
farmer does not have the right to retain the extra output which has to
be sold and forwarded to the “fertilizer lords” who happen to be
politically connected distributors, traders and creditors. Every year
production increases in this way, the officials at Ethiopia’s Central
Statistical Authority report it as “unprecedented growth,” but they
do not tell us it is the income and wealth of few fertilizer lords that
shoots up by leaps and bounds. Life for the average Ethiopian
farmer remains hard and unbearable.
The agricultural revolution that Meles and company are obsessed
with is a revolution of renewed commitment to prolong rural poverty
and condemn the majority of peasants to increased misery and
suffering. Under the feudal era, tenants paid tributes out of their
produce. If locusts invaded their farms and nothing was harvested in
the process, the landlords were “kind enough” not to claim
outstanding obligations for failed crop seasons. In today’s Ethiopia
farmers are forced to remove the corrugated iron from their roofs,
sell their only ox or migrate to towns, cities and cash crop producing
regions to work as daily labourers in order to clear their fertilizer
debt owed to the government or government guaranteed creditors.
Unless something is done to reverse this exploitive system, no
meaningful reduction in poverty can be achieved. And the
government’s dream of using the agricultural sector as stepping
stone for grand industrial development in Ethiopia will remain a pipe
dream.
It is straightforward and logical. If you give Mr. X fertilizer to
expand his farm, and each year you come and collect the increased
output, there is no way that Mr. X will become financially
independent. There is no way that he will increase his savings and
demand for manufactured goods. There will not be such thing as
creating an industrial consumer society out of rural Ethiopia so long
as the government is not ready to take serious supportive measures
to increase rural income and savings. It only takes political will and
about half billion dollars a year for the subsidies (which is roughly
the c.i.f value of our fertilizer import in 2009). After all, 90 percent
of the country’s export revenue is generated from agriculture and
commonsense dictates that the farmers should be the primary
beneficiaries of their efforts—a good portion of this revenue must be
used to subsidize household fertilizer consumption.
Malawi has shown us how a government can do the trick when it
invests in its farmers by providing them with hybrid seeds and
fertilizer free of charges. Of course, exaggeration of production,
confounding bureaucracy, corruption and the use of subsidies for
political advantages are inevitable, problems which could be tackled
with increased transparency and accountability in public resource
allocation and administration. Moreover, efforts to liberalize the
rural land market in Ethiopia (if necessary to be complemented by
imposing a ceiling on the size of landownership to prevent feudal
style land concentration) can further help improve efficiency by
enabling the exploitation of economies of scale. Government
financial support coupled with land tenure security will embolden
farmers to invest more time, energy and resources in soil
conservation and sustainable land management efforts.
Ethiopia’s problems are so many and so complex—a great deal of
them historical—that I do not blame Prime Minister Meles Zenawi
for failing to make Ethiopia an industrial powerhouse over the past
two decades of his rule. But given the relative peace and the
enormous aid money pumped into the country since 1991, he is fully
responsible for failing to fulfill his pledge of three meals a day for
every Ethiopian.
The new GTP flamboyantly declares that Ethiopia will be food self-
sufficient in the coming five years. If it is business as usual, the new
five year economic plan will be another cheap propaganda and
nothing positive will come out it. If we see some detailed
programmes to subsidize household farming at micro level, then it
will be possible not only to ensure food security at national level but
also to create an economically capable rural society with increased
income and savings that could propel industrial expansion through
investment and spending on manufactured goods.
Eradicating extreme poverty or achieving full national food security
in Ethiopia is not an impossible task; it only takes bold leaders who
look beyond their narrow ethnic world view coupled with
nationalizing the fertilizer market temporarily, say for five or six
years; liberalizing the land market (with a ceiling on maximum
number of hectares for individual ownership to prevent excessive
concentration); tackling the population explosion problem; creating
an efficient banking/financial system to effectively mobilize
resources, build savings and allocate these resources to productive
sectors of the economy; tightening the floodgates at Ethiopia’s Birr
printing press (less power to the monetary authorities at the National
Bank of Ethiopia), and above all dismantling all the illegal party-
owned companies which distort competition and discourage
innovation. Anything less is simply tantamount to saying: let them eat
GDP!
For comments bishangary@yahoo.com
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