ETHIOPIA IN NEED OF A BOLD NEW VISION
MARKET TURNS & TWISTS AFFIRM IMPORTANCE OF
NEW APPROACHES TO BEAT POVERTY &
BACKWARDNESS
By Genet Mersha | October 13, 2009
The drama in the marketplace
To the chagrin of those who have squandered their gold, or passed it to others
for chicken fee because of corruption or beguilement, the precious metal’s
meteoric rise is calling for serious thinking and soul searching. Gold has
usurped the dollar’s role as the safest portfolio of wealth, if not, at least, as the
medium of international exchange, both for reserve purposes and as the most
sought-after store of value. It has now become the most reliable hedge
(insurance) against losses due to possible deflation, inflation and in the extreme
against new major bubble of sorts that may lead to market collapse.
Therefore, on October 8 the international gold market witnessed gold
breaking the unexpected price barrier of $1,062.70 per ounce. Later that day,
it retreated to $1,052, still the highest ever recorded in the history of the
precious metal. After a week of yo-yoing between the low and higher sides of
the $1,050s range ever since, on 13 October it hit a new high of $1,069.70.
In the opposite direction, the dollar has fallen against all currencies to its
lowest level. Ironically, stocks in New York could not reach the psychological
threshold of 10,000 pts, despite the rise in prices of gold, oil, metals and some
other commodities. This makes an additional statement about the global
economy’s overall health.
For the time being, neither the euro, nor a currencies-soup is likely to replace
the dollar as an international reserve currency. Economist Carmen Reinhart of
the University of Maryland, who co-authored This Time is Different: Eight
Centuries of Financial Folly with former IMF chief economist Kenneth
Rogoff in 2009 emphasized to Bloomberg, “The euro hasn’t been fulfilling that
role. The yen? Forget it. And the yuan is not convertible. This is not something
that’s around the corner here.” In the circumstances, analysts of different
stripes are convinced that gold prices would continue to rise in the twilight
months of 2009 and possibly far, far beyond until economic recovery is
assured.
In recognizing that, American and European investors are fleeing from the
dullness of the epicentres of financial and economic crises, in essence
abandoning the dollar. They have opened up the tap of their capital flows into
Asian markets abandoning the dollar en masse, although the consequence of
their actions for now is a matter of conjecture. The ironic twist is that these
investors are making money by taking advantage of the low interest rates in
the US borrowing dollar cheaply, converting it into Asian currencies to do
businesses in Asia mostly, not in Europe or in the United States where
taxpayers spent billions in stimulus funds to revive the economy.
Although this inflow of capital is contributing to appreciation of Asian
currencies, for now investors are emboldened by the spread advantage the
weak dollar has created through investments in a mix of Asian currencies, with
over 95 percent of their wealth hedged against losses in some form. The not
yet learnt lesson is that investors’ overconfidence seems oblivious to the
building bubble in Asian markets, the evolving tide of inflation blowing quietly
into the world market. Like the dollar, not all currencies are seen favourably
now. Not all commodities are considered safe refuge either. That fate has
fallen to coffee, grains, cotton, cereals, etc.
Gold is a strategic resource for its owners, so long as it is taken out of the
ground by honest and accountable governments for national betterment. It
would remain shiny for a long, long time to come. And gold owning countries,
both governments (depending on their deals) and investors (companies), have
continued to benefit immensely. If any reader wonders what Ethiopia has done
with its gold, that question is not out of the ordinary. At the same time, we talk
about Asia becoming source of inflation. Recall in this connection that, while
Europe is Ethiopia’s largest export destination, Asia that is feeling the tremors
of inflation now is its primary imports sources. The question here is will
Ethiopia import goods or also inflation from Asia, before it has overcome its
own double-digit disaster.
What is gold trying to tell the world?
Global investor sentiment could be clustered into three categories of worries
about the future: DEFLATION, INFLATION & ECONOMIC
COLLAPSE. The following are their readings of the situation.
If the fear of deflation becomes reality, there is no quick and effective solution.
Japan has been in it for over a decade now that, among other things, has
resulted in little known unemployment hereto before becoming its new reality,
with devastating effect on both Toyota and Sony, among others. If instead, the
global problem is inflation, interest rates could rise. Nevertheless, how could
growth become restorative or transformative in that restrictive environment? In
that scenario, high unemployment would continue deepening recession. This
not only would severely curtail international trade further, but also would be
the primary link between countries.
Most problematic would be, if the fear by the third group, above, is realized,
the policy measures to confront the problem may not be that easy or as
potent, as already seen in the current crises. Central bankers in the major
economies since the end of 2007 have been all over, including with their
‘quantitative easing’—the disregard of monetary policy in favour of
bombarding the market with unrestrained cash flows. Instead, it has generated
fear and disappointment—not to speak of the hostility it has engendered in the
United States towards the Obama administration. The stimulus package has
neither proved as strong to pull the economy out of its decline, nor garnered
confidence and support among a significant number of citizens.
What for Ethiopia and other developing countries?
As far as Ethiopia, or any other ill-prepared developing country is concerned,
there would be the danger of not benefiting from international trade for a long
time to come or finding alternatives to expanding the economy or feeding as
many of its people, while the number of those constantly threatened by
joblessness, drought and famine continuously rising. All along, drought has
been the author of Ethiopia’s inflation. The September 2009 data on inflation
is not out even in mid-October, but the picture is not expected to be that
comforting. Of course, the current inflation is caused largely by misguided
policy that in the wake of that fateful 2005 election hit the gas hard on
domestic spending and high imports without support by domestic production.
In the current reality, the weak dollar has forced commodity prices to shoot
up. However, oil prices are dancing between a high of $73 per barrel and low
of $66 in nearly ten days. While its trip northwards is somewhat unlikely to
continue due to slow economic activity, this price is still very high for many
developing countries. Coffee, cocoa, oilseeds, cotton, etc., have not enjoyed
significant price increases, as much as other commodities, mentioned above,
to support additional costs.
US was in the negative, grains and oilseeds in the December future markets
for corn closed at only in an increase of $3.62 ¼ per bushel, according to
Bloomberg. While the market has been unfair for developing countries,
Ethiopian production has been erratic even in good times, requiring newer
approach and policies.
Mineral explorations in Ethiopia
The Ethiopian Ministry of Mines and Energy boasts of Ethiopia being
endowed with huge deposits of: (a) Precious metals (gold, platinum and
silver and associated with the low-grade meta volcano-sedimentary rocks.
Lega-Dembi, Megado Serdo, Sakaro, Dul, Oda, Kurmuk gold and Yubdo
platinum are located along thin belts and occur as primary and placer
deposits); (b) gemstones (opal, topaz, olivine, ruby and sapphire, quartz, and
garnet; (c) Base metals such as zinc, copper, lead, tin, etc. and have highly
promising potential; (d) rare metals (tantalum in operation now); chromite
and nickel; (e) iron; (f) industrial minerals (silica sand, feldspar, dolomite,
uartz, feldspar, kaoline, limestone, clay, gypsum, phosphate, potash, soda ash,
marble, limestone, basalt, brick clay, ignimbrite etc. bentonite, dolomite,
graphite, soda ash, etc).
It is encouraging that limited explorations of gold are now being carried out in
Ethiopia in the south, west and northern parts of the country, although most
astonishing is the frequency of international companies changing hands. Dwyka
Resources Limited that had taken over from Minerva Resources plc for its
Tulu Kapi gold project and Yubdo platinum project in western Ethiopia has
passed over its concession to Nyota Minerals Limited. Nyota is seized with
the exploration and potential development of one million ounces of gold
project. The company is also currently evaluating its interests in platinum
(ProActiveinvestors.Austrailia).
Nyota’s chief executive recently said, “These exploration results are
outstanding…they provide us with exciting new targets for drilling and the
potential to expand the currently known mineralisation at Tulu Kapi into new
areas of the licences” (SmallCapNews.co.uk). On 5 October, the share of
Nyota Minerals rose by 12 percent. The only industrial scale gold mine in
Ethiopia is Legadembi operated by MIDROC Ethiopia (‘MIDROC’). This is
located 500 km south of the capital, Addis Ababa, and in another block
basement separated from the north by the East African Rift Valley. MIDROC
acquired the mine from the Ethiopia government in 1997 for $172 million.
While MIDROC has spent millions to enhance capacity, the mine has
produced on average 113,000 oz gold per year in the period 2000 to 2005,
according to St. Brides Media & Finance and Mining Africa Review 2006.
MIDROC releases no costs for production.
Similarly, Stratex International has signed a binding letter of intent with Sheba
Exploration (UK) PLC to earn-in an initial 60 percent of the prospective
Shehagne (50 km from Adwa), according to Proactiveinvstors.uk. They
have also agreed a joint venture on a respective 70:30 basis to explore new
prospective targets and license areas in that part of Ethiopia. The company
believes that potential license areas, which currently are under review, have
excellent potential for gold and/or copper and massive sulphide occurrences.
The company would pay 35 percent tax and government would have the
option of taking two percent holdings in equity. This may raise eyebrows.
Stratex says, “We believe that Ethiopia offers similar exciting opportunities for
rapid low cost discovery and is not subject to many of the economic and
political constraints that neighbouring countries are exposed to, such as
product sharing agreements and security issues. Ethiopia is both logistically
and financially an easy and cost effective place to explore,” We hear about
what our country is up to only through foreign sources, because companies
announce them to attract more investors and boost the price of their shares in
the marketplace. Government does not communicate with its citizens.
When and how would Ethiopia benefit from its natural
endowments?
This writer has no reason or adequate information to prejudge the nature of
these contracts. However, the fact is that companies working in this sector
have common interests much greater than their clienteles’ do; that by itself is a
serious disadvantage that hinders developing countries from negotiating
concessions that are more rewarding. Nevertheless, this writer would like to
emphasize that Ethiopia should see clearly its interests going forward,
especially not to repeat past mistakes many African and Latin American
countries have done and are now in a state of surrender or are embroiled in
turmoil in an attempt to regain a fair share of their own. Therefore, it is
important that the country aims at putting its natural resources to the use of its
people in the most judicious manner.
It is reported that Ethiopia loses to smugglers 3,000 tonnes of gold and other
precious metals every year. This figure comes from the Ministry of Mines and
Energy; but it appears to this writer highly exaggerated, unless a domestic
source in power of position of power is in collaboration. However, the
National Bank of Ethiopia (NBE) until recently has been in an annual receipt
of 500-800 kg of gold. More worrisome is how trusting should citizens be
when even national institutions, such as the national bank itself, have not
shown enough credibility and trustworthiness. The reference here is to NBE
that has been not adequately safeguarded the precious metal surrendered to its
custody, as the siphoning of gold worth $150 million (?) has shown.
Similarly, of interest in this connection is that there have been many
controversies in recent months surrounding the twenty-year contract of the
gold mines passed in concession onto Sheik Al Amoudi. If the contract was
given in under the table dealings, as alleged by The Reporter, government
owes it to the Ethiopian people to investigate it and inform the country of its
findings. If the country has unfairly lost what rightfully belongs to it, it should be
indemnified appropriately and the culprits held accountable. The fact that
government has kept mum is troubling, although some people have been
imprisoned.
Why have we become a nation of suspicious citizens?
Gold stolen from the national bank, or gold mines passed on to investor under
shady deals do not give comfort to any citizens. Recently, this writer had also
raised concerns about the lack of transparency in government in its dealings
with foreign companies in virgin agricultural lands of the country in secrecy
since 2004. Why government is so secretive, if all its deals with foreign
companies are valid and meant in the national interest? Why can it not
communicate with the nation?
The whole problem boils down to the form of governance prevailing in the
country, which government in its folly presumes secrecy could be
empowering, especially in internet age where the market does not care for
potatoes or information, so long as the price is right. In fact, in the eyes of
citizens, the very secrecy and the approach that government has espoused in
denial and scapegoating others has become its source of powerlessness and
cause for citizens to loathe its behaviour. In brief, its secrecy is seen as the
hallmark of its arrogance of power and its desire to evade accountable
governance.
While the following is not an endorsement of the Chinese system of
governance, in recent years the further opening up by China has provided
ample lesson for many developing countries. This could be illustrated by
looking at it from two different angles—officials and citizens. Firstly, in an
October 2008 interview, Prime Minister Wen Jiabo candidly told Fareed
Zakaria, about Chinese democracy in the future where he saw progress in
three areas:
Secondly, on the eve of the country’s celebration of its 60th anniversary some
days back, experts of Chinese origin saw the country’s evolution and their
concerns about the future with equal candour. This was captured by NPR
radio, which joined the country in its celebrations. Prof. Wang Zhengxu, a
senior research fellow at England's University of Nottingham, saw the
advantage of having a strong government in the early stages of economic
takeoff to mobilize resources, and determine national priorities and the sectors
that are important for the economy. He stressed, at that stage, “it is the
policies that matter more than the type of government.”
Tsinghua University historian Qin Hui argues that authoritarian systems are
also good at concentrating economic gains in the hands of a powerful few.
This forces average citizens to save more and consume less. He adds, "Given
equal GDP growth, I believe that under a democratic system, more people
will get a bigger share of that growth…This is because democratic systems
encourage higher levels of consumer spending. In the case of the United States
this has led to unsustainable levels of borrowing, mostly from China, because
of which the different political systems of the U.S. and China have contributed
to the current imbalance in the world economy.”
NPR quotes Prof. Minixin Pei saying authoritarian regimes are experts at
dazzling foreign visitors with their giant spectacles — such as the parade on
China’s 60th anniversary or last year's Olympics in Beijing — and with their
massive infrastructure projects. "China can build the world's largest airport
terminal, but China cannot really make sure it delivers milk that is safe to
drink," Pei says. “And while authoritarian regimes tout their successes…They
tend to squelch any discussion about the human and environmental costs of
their blunders.”
The above discussions have object lessons to Ethiopia, which government has
now elevated to a status of Open Society, which Ato Seyoum Mesfin claimed
before the UN Assembly last September and that I mentioned in my last
article. In contrast, China is very clear about its objective along time scales.
Their assessment is honest about the strengths and weaknesses of the system
they pursue, though rife with efforts to buy time. More importantly, they do
not hide behind blind denials, or embellishments or constant search for
scapegoats when their expectations are not realized. Chinese leaders have a
vision for their country, quite different from the goal of personal
aggrandizement and enrichment.
Ethiopia needs to take heed of the lesson provided here. The country is badly
in need of a new bold vision. What Prof. Minxin Pei says about China is
equally applicable to Ethiopia. The country needs to adopt openness, citizen
participation and an attitude of respect and humility to listen to different views.
All experts mentioned here, above, agree that before China adopted its
current policies, its political and economic path was erratic. For Pei, however,
the trouble remain, "A centralized political system, especially one that is not
accountable to its own people, can make horrendous mistakes.” If Ethiopian
recall in this connection the causes of the double-digit inflation, that is a sign of
their maturity.
The way forward
Ethiopia, Africa, has many prospects, into which it has so far failed to put its
minds and efforts. Thus, it should not come as a surprise that Africa has now
become one of the less well-known sources of investments. Peer into the
Africa bonds major European and US banks offer for investors in mines,
manufacturing inputs or industrial processing. Even at this time of poor
economic performance world wide, funds and bonds linked to investments in
Africa in the last two years have fetched as much as 18 to 25 percent earnings
growth. This should encourage African governments and African investors to
work out a policy framework that is free from stale ideology, the habit of
throwing good money after bad only to cater to narrower interests.
Improved political, institutional and economic performance is the last hope of
Ethiopia and Africa. The media should be used as instrument to aid
governments, if government itself is honest and fighting corruption and
malfeasance. Civil societies assist the unreachable sectors of society. Hostility
towards them is influenced by macho culture and apathy to power sharing that
CSOs aim at fostering by helping the empowerment of illiterate citizens. It is
time the state in Africa is tamed and abandons its sense of being not subject to
scrutiny. The state should stop boasting about ensuring the physical safety and
mental sanity of its citizens from war and the danger of diseases, before
citizens’ deliverance from the prevalent sense of insecurity caused by fear and
state violence itself. In contrast, a sense of security aided by a sense of
freedom, it empowers citizens to try their skills and gifts to benefit themselves
and the broader society.
Therefore, the current global crisis should not be used as an excuse for poor
performance or the search for alternatives, or to drum up the echo of terrorism
to beat opponents or to reverse reforms that in the first place have opened up
some possibilities.
The way out of our present predicament is through a bold new vision. That
does not come like a thunderbolt. It starts with a good foresight and in steps,
sector-by-sector, but closely synchronized—with the consistency of a clock
and the persistence of a camel. Rest assured that empowering an inefficient
state, elitist or ethnic capitalism is not an innovation or a new vision. It is the
womb of all corruption and backwardness.
Thus, the starting point is through respect for the human person, fundamental
human rights, improved education and endeavouring to improve life conditions
of the millions of our people whose life conditions have been continually
deteriorating while government has been tapping itself on the shoulder about
its success in double-digit economic growth.
MARKET TURNS & TWISTS AFFIRM IMPORTANCE OF
NEW APPROACHES TO BEAT POVERTY &
BACKWARDNESS
By Genet Mersha | October 13, 2009
The drama in the marketplace
- Throughout history, gold has been the
unrivalled source of value, although
for decades the dollar has been its
formidable challenger. In a reversal of
fortune, however, today the dollar is
fighting to hold onto its own especially
on the cross currencies fronts (the so-
called dollar index) against the euro,
sterling, yen, the loony, Swedish
krona and Swiss franc. In contrast,
the weighty and glittering metal has
arisen to majestic prominence as the
To the chagrin of those who have squandered their gold, or passed it to others
for chicken fee because of corruption or beguilement, the precious metal’s
meteoric rise is calling for serious thinking and soul searching. Gold has
usurped the dollar’s role as the safest portfolio of wealth, if not, at least, as the
medium of international exchange, both for reserve purposes and as the most
sought-after store of value. It has now become the most reliable hedge
(insurance) against losses due to possible deflation, inflation and in the extreme
against new major bubble of sorts that may lead to market collapse.
Therefore, on October 8 the international gold market witnessed gold
breaking the unexpected price barrier of $1,062.70 per ounce. Later that day,
it retreated to $1,052, still the highest ever recorded in the history of the
precious metal. After a week of yo-yoing between the low and higher sides of
the $1,050s range ever since, on 13 October it hit a new high of $1,069.70.
In the opposite direction, the dollar has fallen against all currencies to its
lowest level. Ironically, stocks in New York could not reach the psychological
threshold of 10,000 pts, despite the rise in prices of gold, oil, metals and some
other commodities. This makes an additional statement about the global
economy’s overall health.
For the time being, neither the euro, nor a currencies-soup is likely to replace
the dollar as an international reserve currency. Economist Carmen Reinhart of
the University of Maryland, who co-authored This Time is Different: Eight
Centuries of Financial Folly with former IMF chief economist Kenneth
Rogoff in 2009 emphasized to Bloomberg, “The euro hasn’t been fulfilling that
role. The yen? Forget it. And the yuan is not convertible. This is not something
that’s around the corner here.” In the circumstances, analysts of different
stripes are convinced that gold prices would continue to rise in the twilight
months of 2009 and possibly far, far beyond until economic recovery is
assured.
In recognizing that, American and European investors are fleeing from the
dullness of the epicentres of financial and economic crises, in essence
abandoning the dollar. They have opened up the tap of their capital flows into
Asian markets abandoning the dollar en masse, although the consequence of
their actions for now is a matter of conjecture. The ironic twist is that these
investors are making money by taking advantage of the low interest rates in
the US borrowing dollar cheaply, converting it into Asian currencies to do
businesses in Asia mostly, not in Europe or in the United States where
taxpayers spent billions in stimulus funds to revive the economy.
Although this inflow of capital is contributing to appreciation of Asian
currencies, for now investors are emboldened by the spread advantage the
weak dollar has created through investments in a mix of Asian currencies, with
over 95 percent of their wealth hedged against losses in some form. The not
yet learnt lesson is that investors’ overconfidence seems oblivious to the
building bubble in Asian markets, the evolving tide of inflation blowing quietly
into the world market. Like the dollar, not all currencies are seen favourably
now. Not all commodities are considered safe refuge either. That fate has
fallen to coffee, grains, cotton, cereals, etc.
Gold is a strategic resource for its owners, so long as it is taken out of the
ground by honest and accountable governments for national betterment. It
would remain shiny for a long, long time to come. And gold owning countries,
both governments (depending on their deals) and investors (companies), have
continued to benefit immensely. If any reader wonders what Ethiopia has done
with its gold, that question is not out of the ordinary. At the same time, we talk
about Asia becoming source of inflation. Recall in this connection that, while
Europe is Ethiopia’s largest export destination, Asia that is feeling the tremors
of inflation now is its primary imports sources. The question here is will
Ethiopia import goods or also inflation from Asia, before it has overcome its
own double-digit disaster.
What is gold trying to tell the world?
Global investor sentiment could be clustered into three categories of worries
about the future: DEFLATION, INFLATION & ECONOMIC
COLLAPSE. The following are their readings of the situation.
- First, deflation warriors see the weak economy is not showing meaningful
recovery, despite the massive infusion of capital into the market (banks and
some industries). The jobs market has continued on its steady path of
contraction (9.8% unemployment). Even as we head into the holiday
season, retails data lend credence to that fear, confirming that consumer
spending is still at its lowest. New investments continue to be scarce
because of inaccessibility of credit and fear of the future. The housing
industry, that less than three years ago spewed its destructive forces, is still
not in a reliable recovery mode, as both the state of construction and sell of
homes and commercial properties is in a slump. Manufacturing industries
are still better off laying employees and shutting production, even to fill
inventory. Deflation worriers fear central banks may withdraw the stimulus
package prematurely, thereby crushing the so-called ‘green shoots’—the
few signs of economic recovery and make deflation a reality.
- Second, there are those who are concerned about inflation. They see its
makings in the massive stimulus funds governments and central banks have
pumped into the market. That fear is based mostly on doubts that central
bankers may not withdraw the stimulus funds in time, thereby contributing
to inflationary pressures. The concern is that central bankers might be
under political pressure not to withdraw the stimulus funds in a timely
manner, because of the high numbers of unemployed people in almost all
countries. Asia has so far pulled off, with the rise of international
investments. While such transfer of investments has denied the stimulus
funds of any ability to have meaningful impacts in Europe and America,
Asian markets are awash with cash, strengthening currencies and yes, the
elements of inflation. China, which has its currency pegged to the weak
dollar is benefiting from the situation, while contributing immensely to the
build up of bubble in other Asian markets. Aware of this, Asian central
bankers do not seem poised to hit the break hard any time soon. The
consequences of that, at a time when other economies are still weak, is
anyone’s guess.
- Third, there are those who fear total collapse of economies under the
weight of huge US debts, trade imbalances, budget deficits, exacerbated by
the economic crisis and two wars. So far, the economy has remained less
responsive than anticipated to the billions of dollars of stimulus spending.
Battered by such adverse economic factors and the seemingly permanent
low interest rates, the weak dollar has been discouraging foreign investment
in the US. Where continuation of this situation would lead is anyone’s guess.
If the fear of deflation becomes reality, there is no quick and effective solution.
Japan has been in it for over a decade now that, among other things, has
resulted in little known unemployment hereto before becoming its new reality,
with devastating effect on both Toyota and Sony, among others. If instead, the
global problem is inflation, interest rates could rise. Nevertheless, how could
growth become restorative or transformative in that restrictive environment? In
that scenario, high unemployment would continue deepening recession. This
not only would severely curtail international trade further, but also would be
the primary link between countries.
Most problematic would be, if the fear by the third group, above, is realized,
the policy measures to confront the problem may not be that easy or as
potent, as already seen in the current crises. Central bankers in the major
economies since the end of 2007 have been all over, including with their
‘quantitative easing’—the disregard of monetary policy in favour of
bombarding the market with unrestrained cash flows. Instead, it has generated
fear and disappointment—not to speak of the hostility it has engendered in the
United States towards the Obama administration. The stimulus package has
neither proved as strong to pull the economy out of its decline, nor garnered
confidence and support among a significant number of citizens.
What for Ethiopia and other developing countries?
As far as Ethiopia, or any other ill-prepared developing country is concerned,
there would be the danger of not benefiting from international trade for a long
time to come or finding alternatives to expanding the economy or feeding as
many of its people, while the number of those constantly threatened by
joblessness, drought and famine continuously rising. All along, drought has
been the author of Ethiopia’s inflation. The September 2009 data on inflation
is not out even in mid-October, but the picture is not expected to be that
comforting. Of course, the current inflation is caused largely by misguided
policy that in the wake of that fateful 2005 election hit the gas hard on
domestic spending and high imports without support by domestic production.
In the current reality, the weak dollar has forced commodity prices to shoot
up. However, oil prices are dancing between a high of $73 per barrel and low
of $66 in nearly ten days. While its trip northwards is somewhat unlikely to
continue due to slow economic activity, this price is still very high for many
developing countries. Coffee, cocoa, oilseeds, cotton, etc., have not enjoyed
significant price increases, as much as other commodities, mentioned above,
to support additional costs.
- For instance, in this time
of commodity price
boom, the average price
of mild coffees for the
entire month of August
2009, according to the
International Coffee
Organization, stands at
149.76 cents per pound,
far lower than the
average price for the
entire year of 2004.
Since then coffee prices
have been characterized
US was in the negative, grains and oilseeds in the December future markets
for corn closed at only in an increase of $3.62 ¼ per bushel, according to
Bloomberg. While the market has been unfair for developing countries,
Ethiopian production has been erratic even in good times, requiring newer
approach and policies.
Mineral explorations in Ethiopia
The Ethiopian Ministry of Mines and Energy boasts of Ethiopia being
endowed with huge deposits of: (a) Precious metals (gold, platinum and
silver and associated with the low-grade meta volcano-sedimentary rocks.
Lega-Dembi, Megado Serdo, Sakaro, Dul, Oda, Kurmuk gold and Yubdo
platinum are located along thin belts and occur as primary and placer
deposits); (b) gemstones (opal, topaz, olivine, ruby and sapphire, quartz, and
garnet; (c) Base metals such as zinc, copper, lead, tin, etc. and have highly
promising potential; (d) rare metals (tantalum in operation now); chromite
and nickel; (e) iron; (f) industrial minerals (silica sand, feldspar, dolomite,
uartz, feldspar, kaoline, limestone, clay, gypsum, phosphate, potash, soda ash,
marble, limestone, basalt, brick clay, ignimbrite etc. bentonite, dolomite,
graphite, soda ash, etc).
It is encouraging that limited explorations of gold are now being carried out in
Ethiopia in the south, west and northern parts of the country, although most
astonishing is the frequency of international companies changing hands. Dwyka
Resources Limited that had taken over from Minerva Resources plc for its
Tulu Kapi gold project and Yubdo platinum project in western Ethiopia has
passed over its concession to Nyota Minerals Limited. Nyota is seized with
the exploration and potential development of one million ounces of gold
project. The company is also currently evaluating its interests in platinum
(ProActiveinvestors.Austrailia).
Nyota’s chief executive recently said, “These exploration results are
outstanding…they provide us with exciting new targets for drilling and the
potential to expand the currently known mineralisation at Tulu Kapi into new
areas of the licences” (SmallCapNews.co.uk). On 5 October, the share of
Nyota Minerals rose by 12 percent. The only industrial scale gold mine in
Ethiopia is Legadembi operated by MIDROC Ethiopia (‘MIDROC’). This is
located 500 km south of the capital, Addis Ababa, and in another block
basement separated from the north by the East African Rift Valley. MIDROC
acquired the mine from the Ethiopia government in 1997 for $172 million.
While MIDROC has spent millions to enhance capacity, the mine has
produced on average 113,000 oz gold per year in the period 2000 to 2005,
according to St. Brides Media & Finance and Mining Africa Review 2006.
MIDROC releases no costs for production.
Similarly, Stratex International has signed a binding letter of intent with Sheba
Exploration (UK) PLC to earn-in an initial 60 percent of the prospective
Shehagne (50 km from Adwa), according to Proactiveinvstors.uk. They
have also agreed a joint venture on a respective 70:30 basis to explore new
prospective targets and license areas in that part of Ethiopia. The company
believes that potential license areas, which currently are under review, have
excellent potential for gold and/or copper and massive sulphide occurrences.
The company would pay 35 percent tax and government would have the
option of taking two percent holdings in equity. This may raise eyebrows.
Stratex says, “We believe that Ethiopia offers similar exciting opportunities for
rapid low cost discovery and is not subject to many of the economic and
political constraints that neighbouring countries are exposed to, such as
product sharing agreements and security issues. Ethiopia is both logistically
and financially an easy and cost effective place to explore,” We hear about
what our country is up to only through foreign sources, because companies
announce them to attract more investors and boost the price of their shares in
the marketplace. Government does not communicate with its citizens.
When and how would Ethiopia benefit from its natural
endowments?
This writer has no reason or adequate information to prejudge the nature of
these contracts. However, the fact is that companies working in this sector
have common interests much greater than their clienteles’ do; that by itself is a
serious disadvantage that hinders developing countries from negotiating
concessions that are more rewarding. Nevertheless, this writer would like to
emphasize that Ethiopia should see clearly its interests going forward,
especially not to repeat past mistakes many African and Latin American
countries have done and are now in a state of surrender or are embroiled in
turmoil in an attempt to regain a fair share of their own. Therefore, it is
important that the country aims at putting its natural resources to the use of its
people in the most judicious manner.
It is reported that Ethiopia loses to smugglers 3,000 tonnes of gold and other
precious metals every year. This figure comes from the Ministry of Mines and
Energy; but it appears to this writer highly exaggerated, unless a domestic
source in power of position of power is in collaboration. However, the
National Bank of Ethiopia (NBE) until recently has been in an annual receipt
of 500-800 kg of gold. More worrisome is how trusting should citizens be
when even national institutions, such as the national bank itself, have not
shown enough credibility and trustworthiness. The reference here is to NBE
that has been not adequately safeguarded the precious metal surrendered to its
custody, as the siphoning of gold worth $150 million (?) has shown.
Similarly, of interest in this connection is that there have been many
controversies in recent months surrounding the twenty-year contract of the
gold mines passed in concession onto Sheik Al Amoudi. If the contract was
given in under the table dealings, as alleged by The Reporter, government
owes it to the Ethiopian people to investigate it and inform the country of its
findings. If the country has unfairly lost what rightfully belongs to it, it should be
indemnified appropriately and the culprits held accountable. The fact that
government has kept mum is troubling, although some people have been
imprisoned.
Why have we become a nation of suspicious citizens?
Gold stolen from the national bank, or gold mines passed on to investor under
shady deals do not give comfort to any citizens. Recently, this writer had also
raised concerns about the lack of transparency in government in its dealings
with foreign companies in virgin agricultural lands of the country in secrecy
since 2004. Why government is so secretive, if all its deals with foreign
companies are valid and meant in the national interest? Why can it not
communicate with the nation?
The whole problem boils down to the form of governance prevailing in the
country, which government in its folly presumes secrecy could be
empowering, especially in internet age where the market does not care for
potatoes or information, so long as the price is right. In fact, in the eyes of
citizens, the very secrecy and the approach that government has espoused in
denial and scapegoating others has become its source of powerlessness and
cause for citizens to loathe its behaviour. In brief, its secrecy is seen as the
hallmark of its arrogance of power and its desire to evade accountable
governance.
While the following is not an endorsement of the Chinese system of
governance, in recent years the further opening up by China has provided
ample lesson for many developing countries. This could be illustrated by
looking at it from two different angles—officials and citizens. Firstly, in an
October 2008 interview, Prime Minister Wen Jiabo candidly told Fareed
Zakaria, about Chinese democracy in the future where he saw progress in
three areas:
- No. 1: we need to gradually improve the democratic election system so
that state power will truly belong to the people and state power will be
used to serve the people. No. 2: we need to improve the legal system,
run the country according to law, and [have] an independent and just
judicial system. No. 3: government should be subject to oversight by
the people. That will [require] us to increase transparency in
government affairs. It is also necessary for government to accept
oversight by the news media and other parties (Newsweek, 'China's
democracy will continue to grow”).
Secondly, on the eve of the country’s celebration of its 60th anniversary some
days back, experts of Chinese origin saw the country’s evolution and their
concerns about the future with equal candour. This was captured by NPR
radio, which joined the country in its celebrations. Prof. Wang Zhengxu, a
senior research fellow at England's University of Nottingham, saw the
advantage of having a strong government in the early stages of economic
takeoff to mobilize resources, and determine national priorities and the sectors
that are important for the economy. He stressed, at that stage, “it is the
policies that matter more than the type of government.”
Tsinghua University historian Qin Hui argues that authoritarian systems are
also good at concentrating economic gains in the hands of a powerful few.
This forces average citizens to save more and consume less. He adds, "Given
equal GDP growth, I believe that under a democratic system, more people
will get a bigger share of that growth…This is because democratic systems
encourage higher levels of consumer spending. In the case of the United States
this has led to unsustainable levels of borrowing, mostly from China, because
of which the different political systems of the U.S. and China have contributed
to the current imbalance in the world economy.”
NPR quotes Prof. Minixin Pei saying authoritarian regimes are experts at
dazzling foreign visitors with their giant spectacles — such as the parade on
China’s 60th anniversary or last year's Olympics in Beijing — and with their
massive infrastructure projects. "China can build the world's largest airport
terminal, but China cannot really make sure it delivers milk that is safe to
drink," Pei says. “And while authoritarian regimes tout their successes…They
tend to squelch any discussion about the human and environmental costs of
their blunders.”
The above discussions have object lessons to Ethiopia, which government has
now elevated to a status of Open Society, which Ato Seyoum Mesfin claimed
before the UN Assembly last September and that I mentioned in my last
article. In contrast, China is very clear about its objective along time scales.
Their assessment is honest about the strengths and weaknesses of the system
they pursue, though rife with efforts to buy time. More importantly, they do
not hide behind blind denials, or embellishments or constant search for
scapegoats when their expectations are not realized. Chinese leaders have a
vision for their country, quite different from the goal of personal
aggrandizement and enrichment.
Ethiopia needs to take heed of the lesson provided here. The country is badly
in need of a new bold vision. What Prof. Minxin Pei says about China is
equally applicable to Ethiopia. The country needs to adopt openness, citizen
participation and an attitude of respect and humility to listen to different views.
All experts mentioned here, above, agree that before China adopted its
current policies, its political and economic path was erratic. For Pei, however,
the trouble remain, "A centralized political system, especially one that is not
accountable to its own people, can make horrendous mistakes.” If Ethiopian
recall in this connection the causes of the double-digit inflation, that is a sign of
their maturity.
The way forward
Ethiopia, Africa, has many prospects, into which it has so far failed to put its
minds and efforts. Thus, it should not come as a surprise that Africa has now
become one of the less well-known sources of investments. Peer into the
Africa bonds major European and US banks offer for investors in mines,
manufacturing inputs or industrial processing. Even at this time of poor
economic performance world wide, funds and bonds linked to investments in
Africa in the last two years have fetched as much as 18 to 25 percent earnings
growth. This should encourage African governments and African investors to
work out a policy framework that is free from stale ideology, the habit of
throwing good money after bad only to cater to narrower interests.
Improved political, institutional and economic performance is the last hope of
Ethiopia and Africa. The media should be used as instrument to aid
governments, if government itself is honest and fighting corruption and
malfeasance. Civil societies assist the unreachable sectors of society. Hostility
towards them is influenced by macho culture and apathy to power sharing that
CSOs aim at fostering by helping the empowerment of illiterate citizens. It is
time the state in Africa is tamed and abandons its sense of being not subject to
scrutiny. The state should stop boasting about ensuring the physical safety and
mental sanity of its citizens from war and the danger of diseases, before
citizens’ deliverance from the prevalent sense of insecurity caused by fear and
state violence itself. In contrast, a sense of security aided by a sense of
freedom, it empowers citizens to try their skills and gifts to benefit themselves
and the broader society.
Therefore, the current global crisis should not be used as an excuse for poor
performance or the search for alternatives, or to drum up the echo of terrorism
to beat opponents or to reverse reforms that in the first place have opened up
some possibilities.
The way out of our present predicament is through a bold new vision. That
does not come like a thunderbolt. It starts with a good foresight and in steps,
sector-by-sector, but closely synchronized—with the consistency of a clock
and the persistence of a camel. Rest assured that empowering an inefficient
state, elitist or ethnic capitalism is not an innovation or a new vision. It is the
womb of all corruption and backwardness.
Thus, the starting point is through respect for the human person, fundamental
human rights, improved education and endeavouring to improve life conditions
of the millions of our people whose life conditions have been continually
deteriorating while government has been tapping itself on the shoulder about
its success in double-digit economic growth.
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