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".

http://www.huffingtonpost.com/dawit-ayele-haylemariam/how-real-is-the-ethiopia-_b_7985180.html

Hey Presto!

Statistics are the magic, and the manna, of the economist. They are less reliable than weather forecasts; the meteorologist has a better chance of forecasting rainfall than an economist of forecasting economic growth.Things get even more testy over the issue of Gross Domestic Product, that great calculator of a nation’s economic output. The proof, in this case, lies outside the pudding, rather than in it. Things get even more testy over the issue of Gross Domestic Product, that great calculator of a nation’s economic output. The proof, in this case, lies outside the pudding, rather than in it....

...A suitable illustration of this statistical gazing comes in the form of assessing Nigerian economic performance. For one, the recent rebasing of its performance seemed to take other countries in the region by surprise. Nigeria is now Africa’s largest economy. This hardly seemed to make sense, given that South Africa, with a GDP of $354 billion in 2013, was streets ahead. Nigeria’s statistician-general would have none of that. Figures showed a jump from 4.2 trillion naira to 80.2 trillian naira, the equivalent of $509 billion. Astonishingly, the economy had grown by 90 per cent, effortlessly surpassing their rivals....

...The problem, as ever, is that GDP is one of the greatest tricks in the economist’s manual. In itself, it says nothing. Roy H. Webb of the Federal Reserve Bank of Richmond offers a definition: “the market value of current, final, domestic production during a specific interval of time.” Already we have our first problem – value includes prices for goods and services actually paid in market transactions. Defense costs may not be available because market prices are not available. What is left out can prove as vital as what is included.

States, on paper, can appear rich yet still have a good portion of its citizens living on less than a dollar a day. The GDP measurement had its origins in concepts of sound and sober management – monitoring the economy the way a doctor monitor’s a patient’s health. That management, as with other systems of accounting, went awry. It has been said that John Maynard Keynes’s The General Theory of Employment, Interest and Money was a true catalyst, given its emphasis on matters of national investment and product. The retiring Bureau of Economic Analysis chief Steven Landefeld has issued an appropriate warning: figures like GDP “are eminently useful in macroeconomic analysis if they are not regarded as a precision instrument.” The line between precision and lethality is a fine one...

... economic improvement should never be a race. It should be a matter of genuine growth and poverty alleviation. Economic growth serves as both warning and promise. As well as it might suggest that some things are going well, it gives little indication about distribution. GDP remains a trick.

Full article by Binoy Kampmark on the Dissident Voice website 

Promises ...always promises

Soaring economic growth in many African countries is coming at the expense of the poor, according to a new report, ‘Africa Rising?’ Despite a decade of high growth across the continent, the wealth created is not being equally shared and so progress in human development in Africa has been disappointingly limited, according to the report by Christian Aid and Tax Justice Network-Africa.

But the growing gap between rich and poor is not simply the result of the rich getting richer, the authors say. They also point to money escaping offshore in illicit flows as well as tax systems that are failing to redistribute wealth and in some cases even disadvantaging the poor.

“Inequality has been exacerbated by the growth model in many countries which has seen a concentration of income,” said Alvin Mosioma at Tax Justice Network-Africa. “It also reflects the inability of governments to tax the proceeds of growth, either because so much is given away in corporate tax breaks, or has escaped offshore into tax havens. Until tax dodging is tackled effectively, nationally and internationally, and illicit finance flows from the continent halted, economic inequality will continue to rise.”

Standard Chartered said that the 16 percent annual increase in African revenue in the past five years is “sustainable.” Viswanathan Shankar, chief executive officer for Europe, the Middle East, Africa and the Americas  of the London-based bank explained “There is huge interest in Africa; it is a continent of hope and of rising world interest,” Shankar said. “If you look at World Bank data 7 of the top 10 fastest-growing economies over the next 10 years are projected to be in Africa.”

Standard Chartered was the biggest arranger of syndicated loans in sub-Saharan Africa in 2013, its deals included raising $3.25 billion in a seven-year term-loan for Nigerian billionaire Aliko Dangote’s Dangote Industries Ltd. and $1.99 billion in three- and five-year financing for Aspen Global Inc., a Mauritius-based company with interests in medical products. Standard Chartered’s operating profit from Africa grew 9.8 percent in the first half of 2013 to $357 million, while revenue climbed 16 percent to $853 million, making up 8.7% percent of overall income. Growth in Africa will be led by Nigeria, Ghana, which has a history of good economic and political governance, Kenya and Angola and the increasing use of financial products like bonds, loans and mortgages.

Meantime while the financial sector boasts of promising profits in the future a lack of electricity continues to be a major problem in parts of Africa. According to the Washington Post, only 14 percent of people get any electricity at all in Tanzania, and across sub-Saharan Africa, nearly 590 million people lack access to power. This problem has had severe effects. Indoor air pollution from wood stoves kills 3.5 million people per year, more than AIDS and malaria combined.

The legacy of Belgium’s empire left just a few dozen Congolese university graduates and an economy built chiefly to supply Belgium with raw materials. Even today, there is just 2,000 km (1,250 miles) of paved road in a nation the size of Western Europe. Millions of Congolese are estimated to have died and the country was decimated between 1885 and 1908 after King Leopold II declared Congo his personal property. The king's troops were ordered to collect the hands of victims, often shot for resisting slave labour, to prove they had not wasted bullets. Leopold even imported Congolese for a human zoo to show life in the country he never visited.
Adam Hochschild, author of "King Leopold's Ghost" describes Leopold's unrestrained plunder of Congo, told Reuters he has been surprised at many Belgians' ignorance of what happened in colonial times. Belgium may not be the power it once was, but its people are among the richest Europeans. Much of that prosperity can be traced to the colonial past, when the country stood among the globe's most successful trading economies. Over the first six decades of the 20th century, ivory, rubber, copper and diamonds all flowed from Africa to Belgium. The royal family's wealth is reflected in its sprawling palace, extended by Leopold and modeled on Versailles.
In the more than half-century that Belgium ran Congo from 1908 to 1960, hundreds of thousands of Belgians worked there in everything from business to colonial administration yet exports from Congo were little more than 280 million euros last year.

Promises turn into lies if they are not kept. It is too easy to come up with an impressive list of things to do, knowing too well that it's just a pipe dream that will fizzle out. For far too long citizens have fallen for those with the rhetoric and have paid dearly. The time has come to interrogate what they say to us. It does not help democracy or our future if we allow politicians to continue making promises they won't honour. We have been told how millions of our people will be employed and how corruption will be squashed, but all the talk is short on detail. In the global world in which we live, it is imperative that we look beyond our borders.

Africa's capitalist boom - No silver lining

Sub-Saharan Africa is set to grow by 5.6 percent this year, according to latest figures from the International Monetary Fund (IMF), with 18 countries hitting at least six percent. Yet the continent’s boom has failed in recent years to significantly dent poverty levels, economists say.

Africa’s oil and mining, telecommunications, banking and retail are all flourishing, construction is booming and private investment inflows surging. But the continent’s poor are still not riding the wave.
“More than a decade of strong economic growth has reduced poverty in sub-Saharan Africa – but not by enough,” said the World Bank last week. Growth has been less poverty-reducing than elsewhere in the world; and despite the faster growth in resource-rich countries, levels of poverty are falling at a slower rate , it said. More than a third of the world’s extreme poor still live in sub-Saharan Africa. And it is still the only region in the world where the number of poor people rose “steadily and dramatically” between 1981 and 2010. “Higher economic growth does not automatically translate into higher poverty reduction,” states the report.

“The poverty rate is not going down at the same rate that the growth rate is going up,” said Soren Ambrose, economist of anti-poverty group ActionAid in Nairobi. “The mining companies were given attractive deals: those companies come in and do their business and as a result the growth rates are up.” But, he added: “Not much remains, the amount that is left in the country is not so much.”

Growing economy - growing poverty

Africa's growth has remained above 5 percent in the last eight years, and the  IMF growth forecasts for Africa in 2012 at 5.4 percent but poverty is not falling anywhere near as fast.

Marcelo Giugale, World Bank Director of Economic Policy and Poverty Reduction Programmes for Africa, was asked if the continent was growing fast enough to fight dire poverty. "The short answer is 'No'. It's not enough to reduce poverty, not by enough," he said.The World Bank estimated on its website in March that the percentage of poor Africans fell from 58 percent in 1999 to 47.5 percent in 2008, a decline of about one percentage point a year. He added that when high inflation accompanied growth - as it has in much of Africa - the impact on poverty was severe. While growth was not enough by itself for poverty to fall, high inflation was enough to guarantee it would rise because price rises hit the poor the hardest.

http://www.trust.org/alertnet/news/africa-growth-not-enough-to-reduce-poverty-world-bank

Unequal Africa

The greater portion of wealth in Africa remains in the hands of a few elites is the conclusion of the 2012 Africa Progress Report, titled “Jobs, Justice and Equity”

386 million people on the continent survive on less than US$1.25 a day and the continent accounts for a rising share of global poverty despite its commendable economic growth in recent years, reads the report. In Nigeria, the most populous country in Africa, as well as in Mozambique and Burundi, more than 60 percent of young people are said to work in jobs, which pay less than US$1.25 a day.

When Africa’s growth started to pick up in 1999, the continent accounted for 21 percent of the world’s poverty but by 2008 that share had risen to 29 percent.

This is contrary to conventional economic wisdom that economic growth is the answer to poverty and inequality.

“The main reason for the high poverty rate is not slow economic growth but high inequality,” the report says. "Governments are failing to convert the rising tide of wealth into opportunities for their more marginalised citizens. Unequal access to health, education, water and sanitation is reinforcing wider inequalities.

Using the Gini index, the globally accepted measure of inequality which captures concentration of household income or expenditure (the higher the index, the greater the inequality), there are 24 African countries where the index is higher than 42. The Gini indices for Mozambique, Kenya and Zambia are between 45 and 55, while in Botswana and South Africa the figures are over 60. South Africa is often referred to as the “most unequal society” in the world.

http://www.southerntimesafrica.com/news_article.php?id=7102&title=Africa%E2%80%99s%20growing%20inequality%20gap%20%20&type=80

Booming Africa 2

Following on from the earlier blog Booming Africa we read that the Africa Progress Panel found that African countries were growing consistently faster than almost any other region, with booming exports and more foreign investment. Ghana was the fastest growing economy in the world in 2011 and Ethiopia expanded more quickly than China in the five years to 2009.

 But it warned that there was a contrast between a growing yet still relatively small middle class and the Africans left behind. Although seven out of 10 people in the region live in countries that have averaged growth of more than 4% a year for the past decade, Annan's study found that almost half of Africans were still living on incomes below the internationally accepted poverty benchmark of $1.25 a day. The "trickle-down" pattern of economic growth was leaving too many people in destitution.

 "The deep, persistent and enduring inequalities in evidence across Africa have consequences," the report said. "They weaken the bonds of trust and solidarity that hold societies together. Over the long run, they will undermine economic growth, productivity and the development of markets."

Former UN secretary general Kofi Annan added: "It cannot be said often enough, that overall progress remains too slow and too uneven; that too many Africans remain caught in downward spirals of poverty, insecurity and marginalisation; that too few people benefit from the continent's growth trend and rising geo-strategic importance; that too much of Africa's enormous resource wealth remains in the hands of narrow elites and, increasingly, foreign investors without being turned into tangible benefits for its people."

Booming Africa?

Africa is well known for its wealth of natural resources, which includes oil and gas, a variety of metals and minerals as well as huge tracts of agricultural land. These riches have attracted global investors, most notably from emerging market countries such as China, India and Brazil. Many of these investors have been seeking raw materials for their own economic development and markets for their industries.

More than a billion strong and with a median age of just twenty, the population of Africa is now viewd as a burgeoning market in itelf. Consumer spending in Africa rose at a faster pace than India and Brazil in the past decade as surging commodity prices, debt relief and a move to freer economies helped to boost economic growth. Household spending is set to expand 63 percent to $1.4 trillion in Africa by 2020, home to the world’s youngest and fastest-growing population, according to a 2010 report by McKinsey & Co.

Teddy Muthusi goes to Kentucky Fried Chicken in Kenya’s capital, Nairobi, for more than just fried food: it’s a status symbol. Muthusi gladly spends 1,870 shillings ($22), a quarter of the national monthly minimum wage, to treat his girlfriend at the country’s first U.S.-based fast-food company’s outlet that opened in August. He can afford what many can’t. About 45 percent of Kenya’s population live on less than $1.25 a day, according to the World Bank. “I’m willing to fork out more because it’s cool, it’s trendy, it’s a great place to be seen, and the food is good,” Muthusi, a 36-year-old creative manager at Easy FM radio station said in an interview , raising his voice above the pop music blaring through speakers. “Kenyans have that feeling if you can eat at KFC, you’ve made it. You want to be part of that KFC conversation with friends, on Facebook, in the office,” he said.

About 200 million to 300 million people in Africa earn $730 to $3,650 a year, according to Shantayanan Devarajan, chief economist for Africa at the Washington-based World Bank. “That’s a healthy market for consumer-goods producers,”

According to Devarajan, the potential for growth in consumer spending is greatest in Ghana, where an oil boom fueled economic growth of 14.4 percent in 2011. Nigeria, Africa’s most- populous nation of more than 160 million people and Kenya, East Africa’s largest economy that expanded an average 5.6 percent a year since 2007, will probably also see an increase in retail demand. Sub- Saharan Africa’s economy will expand 5.4 percent this year, the fastest-growing region after developing Asian nations, the International Monetary Fund said

No Benefit from Growth for the Poor

The high economic growth enjoyed by many African states during the 2000s have not led to poverty elimination. This is because the growth did not happen in the sectors where poor people work, as in agriculture, or in the rural areas where poor people live, or simply did not involve labour provided by poor people.

Economist Jan Rielaender explained good economic performance due to investment in oil and other extractive industries has had little effect on poverty. Around 75 percent of foreign investment in Africa has been in oil-rich countries and in so-called extractive industries with few links with the rest of the domestic economy or with poor people.

From 2001 to 2009 only three of the 14 African countries, where the annual gross domestic product growth rates were higher than the regional average of 5.3 percent, registered substantial poverty reduction rates.

The African continent registered a growth rate of 4.7 percent in 2010, and is estimated to rise to 5.0 percent in 2011.
"This is good news for Africa, but not good enough for millions of people who are yet to feel the benefits of prosperity in their daily lives," a joint report released last month, the U.N. Economic Commission for Africa (ECA) and the African Union Commission said

Capitalism booms but little change

International investors are toasting Zambia's fast-growing economy. The economy has recorded an annual growth of five percent for the past five years, inflation is in single digits and the kwacha has appreciated against foreign currencies. Zambia's growth has been fuelled by record copper prices on the world market. Copper accounts for over 80 percent of the country's total foreign earnings.
Last month, the Global Economics Weekly, an international business research publication, ranked Zambia as number one among the 10 most improved countries in the world, ahead of Argentina, Ghana and Russia, among others. President Levy Mwanawasa's administration has been widely praised by western donors for its pro-market policies, which offer foreign investors generous conditions. This is particularly true of the mining sector, where royalty tax is an exceptionally low 0.6 percent, firms are exempt from customs duty, and there is no ceiling on the amount of dividends or profits that can be repatriated. But the benefits seem hard to find in the working-class districts of the capital , Lusaka .

Economists and social rights activists point out that it is all yet to make a serious dent in poverty.
"...they tell us the economy is growing but to us life is still the same, prices of everything on the market are still the same, we are still poor, and we are still looking for jobs," Lusaka resident Agness Banda told IRIN.
The social indicators that reflect whether Zambians are really having a better life have remained stubbornly negative. The poverty rate, as measured by the government's Central Statistical Office, has been stuck at 68 percent for years; despite all the foreign investment, only 400,000 formal-sector jobs exist for a population of 11.7 million.
"There is no emphasis on equitable distribution of wealth from this growing economy," said Ivy Mutwale, acting executive director of the Civil Society for Poverty Reduction, an umbrella advocacy group.
Oliver Saasa, a consultant economics professor at the University of Zambia, said the impact of copper earnings had been negligible because of the lack of social investment.