Wednesday, August 19, 2015

The False Ethiopian Miracle

Economic growth is simply an increase in the amount of goods and services produced in a country over a given period of time, it is commonly measured through Gross Domestic Product (GDP). Essentially, any activity that involves the transaction of values, however of no use or even harmful to human life, will have an increasing effect on the GDP. It is beyond argument that Ethiopia's GDP has been growing at a notable growth rate over the past decade. A recent report by IMF also ranks Ethiopia among the five fastest growing economies in the world.

Has the growth has been (or will be) translated into sustainable improvement in the well-being of citizens, the sustained improvement in living conditions and self-esteem as well as meeting his or her basic needs and enabling of a free and just society. A reason for maintaining skepticism is because history is replete with examples where economic growth was not followed by similar progress in human development. Instead growth was achieved at the cost of greater inequality, higher unemployment and weakened democracy.For example. a report by Save the Children has shown In Nigeria GDP per capita has increased by 51 per cent since 2000, but extreme income poverty has risen by 8 per cent, as has income inequality.

In fact when the double digit growth rate started in 2004, Ethiopia’s GDP was a comparatively meagre $10 billion, which was much lower than the $13.4 billion thirteen years before in 1991. Factors such as poor policy environment as the incumbents then sought to consolidate power in the post-civil war era, border conflicts with Eritrea and droughts have combined to cause a long term economic recession. Thus, the initial few years of fast GDP growth represents recovery from this long period of recession.

Secondly, Ethiopia's fast economic growth is owed to the unprecedented level of public investments in infrastructural schemes and public enterprises. According to the World Bank, Ethiopia's public investment rate is the third highest in the world, while private investment rate is the sixth lowest. So far, growth has been dominated by public investment driven by a combination of foreign aid, easy access to foreign borrowing particularly from China and non-tradable services in particular construction, transport, and hotels and retail stores. The public investment-led development has delivered high growth rates in the past and will continue as a key driver to maintain the trend. The federal government recently approved an $11.1 billion budget for the 20015/16 fiscal year, up by nearly 25 per cent from the previous year. Similarly the Addis Ababa city administration has approved $1.6 billion budget which is also 14 per cent higher than the year before. When combined, these total of $3 billion increase amount to about 6 per cent of the country's current GDP. Aided by more investments by State Owned Enterprises, the government can almost guarantee, with or without any increase in investment or productivity from other sectors, that the high growth rate will continue.

As impressive as Ethiopia's growth is, it has not been accompanied by transformations that can translate into sustained poverty reduction. The Ethiopian economy is still dominated by agriculture. Slight change in structure has emerged due to the growth in services, rather than the growth that was hoped for in industry, particularly manufacturing. Agriculture accounts for 80 percent of employment and 70 percent of export earnings. Even after twelve years of fast growth, manufacturing only accounts for 4.2 percent of the GDP and in 2011 only 8 percent of the labor force is employed in the industrial sector. The country's major export items are still its famous coffee and fresh cut flowers. A report by The World Bank shows, in 2011 only 1 in 12 households had at least one member engaged in the industrial sector.

The number of US-dollar millionaires in Ethiopia rose by 108 percent between 2007 and 2013 - faster than in any other country in African. Similarly, the Ethiopian customs and revenue department recently reported that nearly 65 percent of Ethiopia's tax revenue came from fewer than 1,000 individuals in 2014.

Despite a reported decline of the poverty headcount ratio at $1.25 a day (PPP), equivalent to $0.6, from 44 percent in 2000 to 30 percent in 2011, many continue to have incomes very close to the poverty line, leaving them vulnerable to poverty due to shocks from droughts, job losses, and illness. 72 percent of the population still lived on less than two dollars a day in 2010.

The dramatic rise in the price of major consumer products particularly in 2005/6 and 2010/11 has made the poor's life very difficult leading to struggles to keep their children in school. A report quoting The Ministry of Education has reported Grade Five to Grade Eight drop out of schools more than ever before. About 40 percent were dropping out because "they could not continue classes due to poverty-related reasons."

The Ethiopian government has been criticized for being increasingly autocratic and designing a systems that reward party members and affiliates to the exclusion of dissidents. These concerns are also shared by citizens. A poll published in 2008 by Gallup reveals, fewer than 3 in 10 Ethiopians express trust in the national government, and the judiciary fares as poorly, eliciting confidence from about one-quarter of respondents. But participatory politics prompt the lowest levels of trust, as only 13 percent of Ethiopians have confidence in the honesty of elections. There is no much evidence to suggest citizen's confidence and trust in their government and institutions have improved since. The former mayor-elect of Addis Ababa and now a rebel Professor Birhanu Nega once said "if you can't get your politics right, you can't get your economy right. A country may obtain short-term goals but without inclusive, broad-based Political structure, growth isn't sustainable".

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