Ginbot 7 Report
So much has already been said about the Ethiopian economy and so much more can be said. The TPLF regime trumpets sustained GDP growth, opposition political parties decry bad economic policies that alienate the poor, the IMF questions the pace and scope of financial-sector reforms, and most Ethiopians ask – where is the food?
No matter what is said and who says what, the Ethiopian economy is one of the least productive economies in the world, and the Ethiopian consumer, with a nominal per capita income of $324 (IMF, 2008) is one of the poorest consumers on earth that barely affords two meals a day. According to the United Nations Human Development Index, an index that measures the level of human development (life expectancy, literacy, Educational attainment and GDP per capita), Ethiopia with the index measure of .406, is ranked 169th in the world.
With its abundant natural resources, and its second largest consumer base [≈ 80 million] in Sub-Saharan Africa, Ethiopia is one of the most attractive investment and commodity markets in Africa. Besides, Ethiopia is one of the world’s oldest continuous civilizations with an interconnected culture and history that spans over three millenniums. In fact, this historical continuity and cultural homogeneity is a rare resource that can replicate economic development efforts throughout the country. However, despite its abundant resources and three regimes in just 35 years, Ethiopia is still a textbook example of abject poverty.
In its broad development strategy, which is “Sustainable Development and Poverty Reduction Program (SDPRP)”, the fundamental development objective of Meles Zenawi’s regime was to build a free-market economic system which among other things will free the country from food dependency and make poor Ethiopians the main beneficiaries of the development strategy. However, after 18 years of development rhetoric, Ethiopia is not a free market economy and millions of Ethiopians depend on food aid for survival.
The Meles regime has repeatedly claimed that Ethiopia has experienced a sustained GDP growth rate of 10%. If this claim is correct, then why do more than 40% of Ethiopians depend on food aid? And, why does a nation that claims to have produced ‘millionaire’ farmers suffer from acute food shortages year after year?
Evidently, the classical economic concept of total government “hands-off” free market economy is not valid in today’s sophisticated economic environment where the self-indulgence of human logics has exceeded those of the market. The role of state institutions and political processes is inexorable in shaping socio-economic development in Africa. However, this role does not imply a total government takeover of the economy, as is the case, in Ethiopia.
Most free market economies have two main sectors: a dominant private sector and a public sector. However, in Ethiopia, there is a state run economy [public sector] and there is a “state within a state” that runs a parallel economy. The ruling party in Ethiopia, the TPLF, calls this sector a private sector, a misnomer, since the rules and regulations that govern the private sector do not apply to the party owned business enterprises known as parastatals. In reality, the parastatals, with unlimited access to public finance, are not public enterprises because the income they generate does not flow to the federal treasury.
The Private Sector
In Ethiopia, economic transition towards a market economy with increasing private ownership has been one of the major objectives of the TPLF regime. However, the reform process has stalled due to lack of political will. Moreover, all past and present actions of the TPLF regime in terms of legislation and policy revision has proven to be nothing, but empty words to please donors.
The Ethiopian Privatization Agency (EPA) was established as an autonomous agency in February 1994. In accordance with proclamation No 110/1995 and its amendment proclamation No 193/2000, the agency is accountable to the Ministry of Trade and Industry. However, five permanent board members of the EPA were designated by Prime Minister Meles Zenawi and the agency directly reports to the Prime Minister in all matters.
With the Prime Minister at the helm of the EPA, the agency created a powerful ethnic economic empire under the “phony” name of privatization, and transformed the formerly state-owned public enterprises [public monopolies] into party owned private monopolies. This illegal process paralyzed the movement of private capital, and as a result, today, the Ethiopian private sector is dominated by small and fragmented service oriented enterprises.
Deliberate monopolistic government policies and high entry costs have prevented domestic private investors from entering into the manufacturing, finance, and communication sectors. In almost all the cases, private investors that are not willing to venture with party parastatals cannot enter protected markets, hence, they are forced to divert their capital to less productive service sectors, or go out of business. For example, “Unity Insurance” was able to penetrate the lucrative insurance market because the powerful Guna conglomerate (owned by Sebhat Nega, ex-TPLF Politburo member) was a major investor in it.
The Government Sector
In Ethiopia the TPLF regime consumes an estimated 25% of the nation’s gross domestic product. With ever increasing internal conflicts, intervention in Somalia and military buildup on the border with Eritrea, the regime’s voracious appetite for larger consumption doesn’t seem to slow down any time soon.
Against the liberalization policies of IMF and the World Bank, the TPLF regime has continued to own and run large public enterprises. Currently, the regime is engaged in agricultural, mining, industry, trade, construction, transport, finance, and service activities. This unusual behavior of the TPLF regime has strangled the development of the private sector and has constrained its ability to govern the country.
In most cases, the TPLF regime appears to have stalled private sector reform by deliberately dragging the privatization process until the TPLF party parastatals gain strategic position in some economic sectors. For example, the TPLF business empire’s total incompetence in the field of Information Technology has prevented it from playing a dominant role in the highly lucrative IT market. Hence, liberalizing the IT and telecommunications sectors is delayed until the party parastatals position themselves as major players. As a result, the Ethiopian IT and telecommunication sector is one of the most inefficient.
The Party Parastatals
The TPLF party parastatals are a myriad of companies owned and run by the TPLF party members and their families. These party owned business conglomerates under the Endowment Fund for the Rehabilitation of Tigray (EFFORT) enjoy preferential access to capital, contracts, physical infrastructure, administrative services, tax breaks and other politically motivated support and privilege. For example, in 2003, the U.S. based international accounting firm, KPMG, audited the Commercial Bank of Ethiopia (CBE) and reported a huge non-performing loans (NPL’s) linked to EFFORT, which basically means EFFORT borrowed a huge capital (>3 billion birr) and never paid back a penny.
As indicated in our economic statement last week, the TPLF business empire has a large number of companies that operate in different strategic sectors of the economy. To see the list of TPLF companies
click here.
At the start of the 21st Century, Ethiopia is confronted with the fierce urgency of a crisis that links the country’s present to its future. The crisis is political, economic, ethnic. As hard working and as resourceful as Ethiopians are these crises are still preventable. The question is when, who, and how? When a network of ethnic plutocrats controls the economy, and when land and other important economic resources are owned and run by an ethnocratic state, anyone who adheres to the myth that Ethiopia can join the exclusive club of middle income nations by 2025 is an absolute psychopath. The boldly heralded 18 years of GDP growth story of the TPLF regime has definitely created millionaire party and government officials, but the life of the majority of Ethiopians hasn’t changed from where it was in 1974.
For the past twenty one years, the Tigray People Liberation Front (TPLF) that has no mandate to rule Ethiopia has actually ruled Ethiopia with iron fist dashing on the Trojan horse, the EPRDF ( Ethiopian People Revolutionary Democratic Front). The EPRDF, a political front; composed of a hodgepodge of ethnically assembled organizations, is a hollow group of ethnic demagogues created by its late leader to materialize his lifelong dream of dividing Ethiopia along ethnic lines. Ironically, the EPRDF that blatantly boasts to have averted the disintegration of Ethiopia, firmly stood up to the dreams of its creator and augmented the fragmentation of Ethiopia, the very country it calls home.