In what has become common in the past four years, a new round of nominations was put before Parliament last week. These nominations by the Prime Minister did not receive unanimous votes as most political pundits expected. Members of Parliament, including from the ruling Prosperity Party, voiced their doubts about the “mismatched” nominations between Alemu Sime (PhD) and Habtamu Tegegne, while the slight yet notable objections were partly a result of the absence of a vetting modality on the nomination of Girma Amente (PhD), minister of Agriculture.
Month: January 2023
Can Mamo Overhaul the Central Bank? It’s Long Overdue.
It is not common to see an appointment for a senior federal government office stir debates and controversies. Parliamentarians may grumble about the background and experiences of ministers during confirmation sessions, as they did last week.
Ten of them voted against the confirmations of Alemu Semie (PhD) and Habtamu Tegegn; they seem unhappy that the Prime Minister nominated Alemu as the minister of Transport & Logistics, superseding Dagmawit Moges, despite specialising in mining in his studies. Habtamu, having an engineering background and managing the Ethiopian Roads Authority (ERA), was confirmed to become a minister of Mining, replacing Takele Uma.
Hardly any of these nominations have provoked controversy as the appointment of Mamo Miheretu, the new governor of Ethiopia’s central bank. It could be a good sign, showing public expectations and the degree of importance people attach to the institution.
The criticisms are directed at his lack of experience in macroeconomic and monetary policymaking, least in the banking sector. This has raised legitimate concerns that he may not be able to manage the central bank and its monetary policies effectively.
He studied law and worked for the International Finance Corporation (IFC), focusing on logistics. The closest he came to banking was while serving as a director of the state-own Commercial Bank of Ethiopia (CBE), once he had been in the corridors of power since 2018.
Some have raised concerns about his close ties to Prime Minister Abiy Ahmed (PhD) and his potential lack of independence in making decisions for the bank.
These criticisms are fair to the extent that he may lack a deep understanding of macroeconomic principles, monetary policies, and financial systems and the ability to analyse and interpret economic data. Mamo may have been less exposed to international financial markets and multilateral financial institutions. Neither is he known for the political acumen a governor should have to navigate the political landscape and understand the broader context in which the central bank operates.
This can be compensated by the trust and confidence the Prime Minister puts in him. Mamo is credited by associates for his strong sense of ethics and personal integrity, an asset that can help maintain the autonomy and credibility of the central bank.
However, if history is a better judge, these could be criticisms misdirected and unfair; neither were his predecessors better disposed of in their academic and professional experience before assuming the mantle once held by legends such as Tefera Degefie.
The National Bank of Ethiopia (NBE) has seen four central bank governors since the regime change in the early 1990s. All but one (Leyikun Brehanu) has a background in banking. The longest to serve since its foundation in the early 1960s was Teklewold Atnafu, a trained mathematician employed by the central bank as an expert. He has served nearly two decades, when the Birr saw steady depreciation against a basket of major currencies, including three policy measures in devaluation.
But these were decades of phenomenal economic growth unprecedented in Ethiopia’s economic history. It was also a tenure defined by macroeconomic imbalances due to the structural deficits in the balance of payments, trade and budget. The outcome remains chronic inflation in double digits.
The EPRDFites made the central bank’s role focus on promoting double-digit economic growth and reducing poverty, taking a calculated gamble. Politics primed, and the central bank was never free of executive interference. It should be understandable, though.
The vital function of a central bank is to support the overriding economic growth objectives of the government of the day and ensure price stability through inflation targeting. These are roles all the central bankers before Mamo have chosen or made to relegate to the mandate of regulating the financial sector. The central bank remains more of a federal regulatory agency, with its officials having a knack for harassing bosses of banks and insurance firms. Mamo can push for forming a separate federal regulatory agency overseeing the industry, allowing the central bank to focus its attention where it matters most.
Ethiopia’s National Bank faces several macroeconomic challenges, including high inflation, dwindled forex reserves, and a weak banking sector. It also carries the burden of promoting economic development and reducing poverty. It has not been able to respond effectively to stabilise the national economy due to various factors, including a lack of resources and expertise in macroeconomic management.
A central banker plays a crucial role in ensuring macroeconomic stability, setting monetary policies and managing the money supply; hence controlling inflation and ensuring the economy grows sustainably. A central banker can help to promote financial stability by ensuring that the banking sector is well regulated and that the financial system is resilient to economic shocks.
Ethiopia’s central bankers operate in an economic environment where structural constraints impede growth. Poor infrastructure, an inefficient public sector, and a feeble private sector do little to help the economy become domestically productive and globally competitive. The economic space has a large informal sector, deprived of access to capital and with limited ability to grow.
Lately, a civil war, stubborn insurgency and a broader political instability have confronted the prospect for economic growth, as has a lack of foreign investments. Ethiopia’s high poverty rate has hindered economic development, limiting access to capital formation by the private sector and asset build-up at the household level.
Mamo’s tenure at the central bank will unlikely be free from these multiple challenges. But these are issues the administration he serves has been facing. His most pressing task would be to push for legislative changes to help him build trust with the public through changes in the central bank’s accountability to Parliament rather than the Prime Minister.
The degree to which central banks should be free of the whims and wishes of the executive branch remains a subject of intense academic and policy debates.
The rationale for central banks’ autonomy is achieving a level of policymaking room to lower inflation, better manage political impacts on economic cycles, stabilise the financial system without falling prey to political expediencies, and ensure monetary policy discipline to shield the macroeconomy from volatility and recessions.
Experts from the International Monetary Fund (IMF) looked into the experience of 163 central banks a decade ago to see how many could set final monetary policy objectives on their own. Whether there are legislations that empower central bankers’ positions in the event of conflicts with the executives’ fiscal policy agenda was also an area these experts examined. Their findings revealed that advanced economies have central banks enjoying high levels of autonomy compared to developing countries where markets are operating in low economic and political autonomies.
Mamo may find it above his pay grade to persuade his boss, the Prime Minister, to relinquish the power to appoint and supervise the central bank governor and the mandate to constitute the board. But it should not be for lack of trying.
However, he can impress upon the Prime Minister to let him have his own team with the appointment of a chief economist of proven reputation. He could address the criticisms of his lacking experience in the finance and monetary policy fields, while the installations of two vice governors signal the market that he means business in overhauling an indispensable institution long left to its fate.
The central bank suffers from poor governance and management practices, which led to inefficiency, lack of accountability, and poor decision-making. This has put NBE in a weak position where the governor has lost control to stabilise the Birr against other major currencies. Inflation is on autopilot.
Ethiopia’s central bank has a regrettable reputation for being untransparent and unaccountable, costing the public trust in the institution and the financial system. Mamo’s priorities should be restoring faith in the institution through reforming the central bank with a clear strategy and plan for building its technical, operational, and regulatory capabilities. Strengthening its IT systems, risk management and compliance, and financial reporting systems could be tasks left for yesteryears.
FUND STRAPPED YOUTH
Last week saw thousands of young individuals queueing at three branches of the Development Bank of Ethiopia (DBE) in the capital to register for the fourth round of a five-day “business training”. Many were lured by the hope of gaining sizeable loans without collateral, contingent upon undertaking the training and coming up with a plausible business proposal.
The thirst in the young entrepreneurial community to kick start their business careers was evident as turns in the queue were sold for money as high as 1,000 Br.
On a mid-day one of the weekdays, Roman Mohammed joined the ambitious people waiting in a long line at the Kazanchis branch of the Bank. He had been waiting to register for nearly five hours, taking a leave of absence from work where he earns a 5,000 Br gross salary. Completely in the dark about the program, Roman believes he is getting an interest-free loan, which serves its best interest. Hearing his colleagues fussing about the opportunity to start a business, he came to take the training without giving much thought to what he planned to do.
“I’ll figure it out after the training,” he said.
The registration method demanding applicants’ presence raised questions by many, witnessing the long chaotic queue. For Yeabsira Nigussie, a spokesperson for the Bank, the absence of electronic registration is designed to measure the degree of commitment. He believes millions would register online without an actual interest in engaging in the training otherwise.
Following the gathering of a large “committed” crowd for registration, the Bank has extended the deadline for another four days.
Meanwhile, informed applicants, such as Yahya Abdusemed, are returning home, leaving the scene frustrated by the long line. The young man in his mid-20s is ambitious about joining the agricultural sector. His older brother had already taken the training before this and adequately briefed him on what to expect. After learning about the fourth training from the Bank’s social media platform, he decided to try his chances. He plans to return and see if the situation improves in the last few days.
According to Yeabsira, close to 300,000 people have registered in the four rounds. He said the five-day training would help applicants develop the necessary skill to create business plans and submit qualified proposals.
Lease financing issued by DBE will entail the purchase and renting of capital goods (machinery) at a yearly service charge of nine percent. The financing modality is open for new and running businesses within the priority sectors such as agriculture, agro-processing, tour operation, mining and construction.
The projects need a capital range between half a million Birr and 7.5 million Br while contributions by the Bank will not exceed more than 80pc of the total equity as the recipient will need to cover running costs such as salaries. Grace periods for payments of service fees will not exceed six months.
This differs from the modality mentioned by the Bank President, Yohannes Ayalew (PhD), a month ago to a maximum of 1,000 businesses. At a panel discussion held at the Science Museum, he revealed to an audience of prospective entrepreneurs that the bank had prepared about 80 million dollars for “idea financing”. He also said a televised national process of ideas being pitched to a panel of judges would ultimately provide seed money.
The support for startup business ideas is better late than never, as a new report by Sub Stack indicates that Ethiopia mobilised one billion dollars less than its neighbour Kenya funding startups in the past year.
The report, which compiled data on startup financing in Eastern Africa, demonstrates that Ethiopia managed to facilitate a mere six million dollars which translates to 0.5pc of the total fund for the region, while Kenya issued a staggering 1.16 billion dollars. Tanzania, Uganda and Sudan have managed to flow more funds to startups.
The Assistant Professor of Finance at Addis Abeba University, Sewale Abate (PhD), predicts startups will fall short of funding until the capital market becomes operational. He argues since the banks have a five percent nonperforming loan threshold, they cannot afford to give high-risk loans with long payback periods.
“Commercial banks have zero appetites for risk,” he told Fortune. He said they would risk seizure by the central bank if they engaged in high-risk speculation with the deposit of customers.
According to the expert, the only policy bank in the country expecting to address the national demand for seed funding is not pragmatic. He said Venture Capital, Angel Investors, Hedge Funds, and Mutual Funds are the types of financial institutions that can afford to give out high-risk loans to startups and can exist only in an operational capital market.
Sewale describes the shortage of loanable funds due to the absence of capital markets as an unfortunate inevitability that renders Ethiopia falling behind in startup funding.
The frustration with the entrepreneurship ecosystem led to the establishment of the Ethiopian Youth Entrepreneurs Association (EYEA).
Karemenz Kassaye, the co-founder and vice president, said most of his friends left the country, fed up with the system. In his 30s, he had attempted to launch multiple products in his quest for financial freedom, with most crumbling due to a lack of access to capital.
He reasoned that the banks hardly show a willingness to provide capital without collaterals, which startup businesses do not have. Karemenz considers most banks to operate in an outdated and highly risk-averse model regarding credit facilitation, lacking competent management that can asses the value of innovative ideas.
“They neither understand what startups are nor what entrepreneurship entails,” he said with a defeated tone. He hopes the Association will at least serve as a voice for the frustrated youth dragged along by the empty promises of politicians and grossly incompetent bureaucracies.
Ethiopia falling behind its neighbours in startup funding is not surprising to him as the mere registration and acquisition of business licenses and getting startup funds are hindrances for most new companies.
His peer Khalid Mohammed concurs. The founder of an e-commerce company called ‘Jimla Tera’ that folded last year was not the least bit surprised at the indications of the Substack report.
“Startup funding only exists in theory here,” he told Fortune.
His company hoped to create a digital link between mass producers within regional states and sellers in the capital. All credit institutions require assets as collateral; an idea is an asset that the banks fail to recognise as one, said Khalid. He believes the lack of integration between government bureaus makes registering a new digital business impossible. The startup was cut short, shut down its offices in Seka Building around Merkato, and the young group of colleagues went their separate ways after being run down by the system or lack thereof.
Abenezer Engida is the CEO of Wuijo, a digital ‘equb’, a traditional saving mechanism much like a mutual fund which hands out the collected capital to members one after the other. Wuijo was founded two years ago with a paid-up capital of 250,000 Br. Optimistic that capital markets will open, he and his four friends pitched in their savings to launch and fund a company that aspires to mobilize 50 million Br through the entry of foreign banks and venture capital firms as the financial sector opens up.
Abenezer believes expecting finance from the banks is not a feasible strategy.
The Director of credit portfolio management at Birhan Bank, Bereket Teketel, believes the lack of valuable security by most startups and the absence of competition between banks in credit facilitation contribute to the issue. He admits that banks will always prefer low risk with high return. On the contrary, startups are usually small and risk-prone.
He underscores that banks have an extensive portfolio of customers with collateral to select from and the incentive to engage with customers with no assets and little experience in managing a business is just not there.
Recognising the problem, the Ministry of Innovation & Technology drafted a new start-up innovation fund directive awaiting ratification. Selamyihun Adefres, director general of innovation & development research, acknowledged classification in the business community between a start-up and a Small and Medium Enterprise had been an issue. He forecasts the opening up of capital markets and the ratification of the directive will fill some of the gaps. The directive will also address funding availability, allowing angel investments and venture capital to fuel start-ups.
“Their absence is why Ethiopia lags,” Selamyihun told Fortune.
Wegagen Bank Bounces with Promise Despite Recent Adversities
Aklilu Wubet of Wegagen Bank and his executives had a lot to celebrate when they met rather anxious shareholders last December as they made a turnaround in the Bank’s adversities and came out of the pit from the past two years. They have registered considerable gains, netting over half a billion Birr in profit for the financial year of 2021/22, a staggering rise of 335pc from the previous year.
It is an outcome translated to exponential earnings per share (EPS) of 16.6pc, three times larger than the previous year, and a 10pc return on equity.
Although the performance is much lower than what was achieved a couple of years ago, Wegagen’s recovery is impressive given the ordeals it encountered recently, according to Abdulmenan Mohammed, a keen observer of Ethiopia’s financial sector, with close to two decades of experience. However, he cautions Aklilu and his team to watch the improved performance as the main driver was a significant decline in provision for loans not performing, and other assets have plunged to 107.4 million Br, a whopping drop of 86.4pc.
Aklilu argued that the provision is neither less nor beyond the regulator’s cap. He was appointed to take the helm as the Bank’s seventh president in February last year when the Bank underwent public backlash following inaccurate media reporting that led to a bank run. In a short period, Wegagen faced a withdrawal of over a billion Birr, shaking its liquidity position.
Under Aklilu’s watch, incomes from interest on loans, advances and investments grew by 3.8pc to 4.05 billion Br, four times higher than the industry average for all the private banks. Interest paid on deposits increased by 23.1pc to 1.81 billion Br, reducing net interest income by 8.5pc. Operating expenses saw salaries and benefits rise by 6.7pc to 1.6 billion Br, and other operating expenses went up by 5.5pc to 1.02 billion Br.
“Wegagen did very well controlling its operating expenses,” applauds Abdulemanen.
Chairman of the Board, Abdishu Hussien, concurs. Open-eyed cost reduction measures had been taken in addition to enhancing the operational performance of branches in the conflict areas, according to Abdishu.
The expert, however, characterised Wegagen’s performances in financial intermediation, fees, and service charge income as inadequate, seeing it dropping by 14.8pc to 897.4 million Br. This meets 45pc of the average revenues for the eight banks in Wegagen’s league.
The Bank’s executives concur. They attributed the weak performance to the closure of hundreds of branches in the north, particularly in the Tigray Regional State, where a bloody and devastating civil war broke out in November 2020.
Wegagen was one of the few banks disproportionately impacted by the civil war in the north. It suffered significant financial losses due to the disruption of services and closure of depositors’ accounts, where it has one of its most extensive networks of 112 branches.
Abdishu acknowledged the year’s difficulties, as the number of branches in the Tigray Regional State underwent closure and became out of the range of management supervision during the two-year war. Wegagen inserted one foot, reopening half of its branches in Meqelle and other towns following a pact between the federal government and armed forces in Tigray, signed in November last year in Pretoria, South Africa.
It managed to increase paid-up capital by three percent to 3.4 billion Br, a far cry from the five billion Birr capital threshold the Central Bank authorities have imposed on all the banks to comply with, come 2026.
Amanuel Demeke is one of Wegagen’s over 7,000 shareholders who acquired 3.2 million Br shares 10 years ago. He reminisces on the more successful years of Wegagen and believes climbing back to its former stature will not be easy. He has seen dividends he collected fall to 200,000 Br. However, after observing the latest performances, he decided to buy more shares from the Bank.
Wegagen’s shareholders, gathered at the Hilton in December last year, resolved to raise paid capital to 20 billion in the next five years. The Bank’s President sees this as a vitally strategic move to boost Wegagen’s competitiveness in the industry that foresees the entry of foreign-owned banks.
The Bank remains one of the biggest private banks with a 13pc equity to assets ratio, two percentage points above the average for the eight most prominent private banks. Its equity-to-loan ratio of 19pc is second to Oromia Bank’s 22pc and one percentage point higher than the average for the eight banks: Awash, Abyssinia, Dashen, Oromia Coop, Hibret and Oromia.
Asheber Kufgaha has served as Wegagen’s branch manager in the Lancha area for over four years. He saw business transactions through the Bank have slowed down due to the complete closure of branches in the north. At 40 million Br, the income from fees and commissions last year was the lowest of the eight banks, representing 0.6pc of their average. However, the Bank performed better in deposit mobilisation and fees from import-export than the preceding year, according to Ashber.
Wegagen’s asset base expanded last year to 43.1 billion Br, growing by 8.8pc; yet, comprising 42pc of the average in its class, the asset size is the lowest among the eight banks, only preceded by Oromia’s 52 billion Br. Wegagen disbursed loans and advances of 28.9 billion Br, an increase of 11pc, but claimed 40pc of the average for the banks in its category. It mobilised a deposit of 33.9 billion, lower by 13.3 million Br compared to last year’s industry average.
Wegagen’s loan to deposits ratio went up to 85.3pc from 82.7pc. Still, it remained one percentage point above the average for its class, where the Bank of Abyssinia and Dashen Bank have recorded the highest of 91pc and 87pc. The liquidity position of the Bank increased in value and relative terms. Its cash and bank balances went up by 112.8pc to 10.3 billion Br. The ratio of liquid assets to total assets increased from 12.2 pc to 23.9pc, mainly achieved by dispensing its investments with the Central Bank’s bond.
The capital and non-distributable reserves with the Central Bank increased by 7.6pc to 5.4 billion Br. The Bank’s capital adequacy ratio remains at 17.3pc, revealing Wegagen’s solid capital base. However, its ratio for non-performing loans of 10.7pc would remain a source of concern to Aklilu and his executives, a ceiling far higher than the 3.9pc average for the eight banks.
Oromia Public Enterprise Buys Ayka Addis Textile
The Oromia Public Enterprise is edging closer to bagging Ayka Addis Textile Factory for 1.82 billion Br. The factory, 20Km west of Addis Abeba, in Alemgena, Oromia Regional State, has been idle under the management of the Development Bank of Ethiopia (DBE) from late 2018 following the default of two billion Birr loans taken before it started operations.
Sources from the policy bank confirmed the public enterprise won the foreclosure a month ago.
According to Adare Assefa (PhD), the head of the Oromia Public Enterprise, no bidders showed interest until the enterprise decided to buy the textile factory last month. He believes it will create more job opportunities in the area and awaken daunted businesses that previously served the factory employees.
“We’ve made the first 20pc of the payment,” he said.
The Enterprise administers 56 companies under its fleet with the factory expected to be operational in the coming six months and planning to source raw materials by entering into a vertical integration deal with farmers. According to Adare, enterprise management plan to transfer full ownership to private investors in the long run. He disclosed three individuals and two companies administered by the Enterprise have 25pc shares but withheld their identity.
Leben Girma has worked at the Eltiex Textile Factory for over two decades.
“It’s been long overdue,” he said. According to him, the success of factories can be guaranteed when diverse stakeholders are involved. In this particular case, Leben believes the well-equipped textile factory with a spinning machine can partner with small garment enterprises.
The policy bank, headed by Yohannes Ayalew (PhD), has been paying salaries for over 4,300 Ayka Addis employees. According to Adare, the Enterprise will take over and hire additional 5,700 employees.
Ayka Addis was established in 2006 by three Turkish shareholders with 679 million Br paid-up capital out of the authorised capital of one billion Birr. Ayka Addis borrowed 813 million Br from the DBE and became operational in 2010, shipping products to Germany, Spain, the US, Japan, France and Canada for eight years. This could have allowed earning 400 million dollars from exports with annual average revenue constituting 28.4pc. However, the factory can not return its loan on time.
The Commercial Bank of Ethiopia is in a similar situation floating a bid for Saygin Dima and Selendawa Textile, after failing to return their loans with no interest.
Adare said experts conducted a feasibility study on the factory and inspection of idle machinery over the past four years, similar to the one conducted by the then Ministry of Trade & Industry upon the request of DBE a couple of years ago.
Ethiopia earned over 175 million dollars from textiles export in the last fiscal year, constituting 4.27pc of the total export revenue. Following Ethiopia’s ban from AGOA in October 2021, Philips-Van Heusen Corporation (PVH Corp), the first international apparel company to step foot following the establishment of Hawassa Industrial Park, announced it had terminated its operations. Losing their significant international buyers, the companies including textile factories under the industrial parks have been struggling to make ends meet ever since.
Ethiopia generated 240 million dollars from exporting under AGOA three years ago, accounting 40pc of the total shipments the country sent to the US.
However, the market’s difficulty did not stress out the Enterprise Head hopeful the privilege will be reinstated soon.
He believes the factory can generate enough revenue by producing garments and distributing them to the domestic market.
“There is still a good domestic market chain,” he said.
For Yoseph Getachew, an investment consultant with over a decade of experience, the suspension of AGOA coupled with insufficient power supply and raw materials has made the industry unattractive to investors.
According to him, the domestic market is not enough as foreign currency is essential to import raw materials and spare parts.
“The government should lobby to return to AGOA,” Yoseph told Fortune.
Parliamentarians Grill Chief Whip Over Ministerial Confirmations
Last week saw an uncharacteristically polemical moment after parliamentarians questioned three nominees of Prime Minister Abiy Ahmed’s (PhD) for ministerial positions, tabled for their confirmations on January 24, 2023.
Alemu Sime (PhD), who previously served as state minister for Mines, was nominated to serve as the minister of Transport & Logistics, while Habtamu Tegegne, the former director general at Ethiopian Roads Administration (ERA), assumed the position of minister of Mines.
The reading from the Chief Whip of the incumbent Prosperity Party (PP), Tsefaye Beljige, of the credentials and expertise of the two ministers revealed their backgrounds suited for the reverse positions. The seemingly misplaced appointment raised confusion among MPs, such as Birhanemeskel Tena (PP), who probed whether the roles should be reversed. However, the Chief Whip retorted that the nominations are “well thought out and informed.”
“Their expertise is not that unrelated. Habtamu can manage the mines sector as he has a background in engineering,” said Tesfaye.
Alemu, for his part, said, “political appointments require leadership rather than technical expertise.”
With studies in development, business administration and enterprise sectors, Alemu has served as an investment commissioner and director of the Water & Mineral Bureau in Oromia Regional State. Following his debut as a State Minister for the Mines and Industry ministers, his experience stretches to deputy executive of the Ethio-Engineering Group (EEG). He had been serving as a coordinator for democratization at the ministerial level before his nomination last week.
Habtamu studied civil engineering and completed his post-graduate studies in Construction Technology & Management (CoTM). His career journey kicked off as a contract engineer in the Shashemene District Office of the then-Ethiopian Roads Authority, now the Ethiopian Roads Administration (ERA). Assuming various leadership responsibilities in the Ethiopian Roads Construction Corporation and Addis Abeba Roads Authority, his last position before the ministerial appointment was the director general of ERA.
The third nominee for the minister of Agriculture, Girma Amente (PhD), studied forestry management and production for his post and undergraduate studies. He followed his doctoral studies in civil culture and has worked at regional and federal agencies.
He led farm and forest management projects and managed the Forest Enterprise Agency under Oromia Regional State.
Parliament confirmed their nominations with a majority vote. Not every MP was content with the confirmations.
Christian Tadele, an MP-the National Movement of Amhara (NAMA), questioned why it was necessary to reshuffle the executive branch a year after the last reshuffling. He asked the House to revise the norm, including sending for the standing committees which oversee the nominations for review to avoid early reshuffling.
Expressing his discontent on why Girma’s nomination was not sent for MPs review alongside the two others, Christian urged for Parliament’s votes for each nominee individually instead of together. It was a motion rejected by the House Speaker, Tagesse Chafo.
Tesfaye told Parliament that this was not a new procedure.
“Confirmations don’t mean nominations can’t be reconsidered,” said Tesfaye.
According to the Chief Whip, Girma’s performance and experience at the regional and federal levels speak for itself. He reiterated the legality of the procedure and the Prime Minister’s duty to nominate ministers granted by the Constitution. He hopes for future consideration of this norm if the Constitution sees amendment on the matter.
Speaker Tagesse believes the parliamentary system does not allow them to indirectly make the nomination of the executives go through standing committees.
“Except asking for elaboration when he reports, we can’t pester the Prime Minister over matters where he is granted power,” said Tagesse.
The Prime Minister’s constitutional authority to appoint ministers was not questioned, but parliamentarians have the mandate to review the backgrounds of the nominees before confirmations, according to Christian. He said his party is more worried about the performance and competence of nominees than political appointments.
“We’re not political laboratories but rather the legislators of a big country,” he told Fortune. “The Chief Whip and the House Speaker have failed to address the question.”
Christian was one of the 10 MPs who voted against the nominations, with two abstentions.
An independent lawyer for more than a decade, Mulugeta Belay, believes what transpired in Parliament last week was not in line with what the laws of the land state; the Prime Minister shall submit nominees for approval to Parliament. He stressed the importance of sufficient time for MPs to investigate the nominees’ backgrounds. The legal expert argued that plausible justifications should have been given to parliamentarians about the inconsistent procedures.
“They should not be compelled to vote when they weren’t adequately informed,” Mulugeta told Fortune. “Parliamentarians aren’t there to just approve whatever is proposed.”
Afro-China Relationships Probe as Trade Reaches All Time High
Trade between China and Africa reached an all-time high of 282 billion dollars this year, as the modern China-Africa relationship nears 70 years old. The figure reflects a rise of 11pc from the previous year, which was also a record back then.
Imports from the most populous nation accounted for nearly 60pc of the trade volume, which amounts to 164 billion dollars, while exports earned 117 billion dollars. China has significant comparative advantages in most African countries with almost all products except primary commodities, such as oil seeds and coffee. Nigeria, South Africa and Egypt are the three most significant trading partners of China within the continent.
Ethiopia primarily exports oil seeds, flowers, coffee, and meat to China while it imports nearly everything from the world’s second-biggest economy. In the past five months, 1.5 billion dollars had been earned from the export sector. Oil seeds account for 72 million dollars, while crops and khat earned 74.6 million and 116.5 million dollars, respectively, with coffee and gold accounting for the rest. Data from the National bank of Ethiopia reveals exports to Europe, which account for 38pc, is the major market for Ethiopian commodities.
Sisay Amare, president of the Ethiopian Pulses, Oilseeds & Spices Processors Exporters Association (EPOSPEO), would like to see exports to China increase.
He reasoned that export earnings are not where they should be compared to the total number of people involved in the sector. He accredited the underwhelming performance of the sector to logistics costs. The setting of price floors by the government also does not help in competing in international markets as someone could easily get an alternative seller somewhere in the world, he said.
Total merchandise import had reached five billion dollars at the end of 2022, with close to 61pc coming from Asia. Nearly half the volume of Asian imports makes its way straight from China.
The establishment of bilateral relationships between China and Africa began in the late 1950s, with only a few countries being free of colonial rule. The Bandung conference of 1955 in Indonesia set the theme of Afro-Asiatic relationships by laying out 10 principles, such as mutual benefit, non-aggression, non-interference in internal affairs, and peaceful coexistence, to define the following decades.
Until a gear shift towards a more market-oriented relationship was ushered following Mao’s era in 1976, Oxford estimates total financial commitments of 2.4 billion dollars, mostly in interest-free loans. The notable project in this period was the construction of a 1,860Km railway from Tanzania to Zambia’s copper fields which has seen declining traffic and maintenance issues over the years.
The current account deficit of Ethiopia reached 1.1 billion dollars in the final quarter of 2022, suggesting that while trade with China is increasing continentally, one of the two might be getting the short end of the stick.
China has never revealed bilateral aid numbers preferring to treat them like state secrets, which creates a fog that makes it difficult to assess the extent of its influence over the continent properly.
As the Chinese new year dawns, the role of Chinese development assistance to Africa was discussed in a public seminar at the Inter-Luxury Hotel the past week. The event, organized by Forum for Social Studies (FSS) and Chr. Michelsen Institute (CMI) presented case studies from different African countries.
Presented by Stein Sundstol Eriksen, a research professor, one study looked at how the relationship between China and Tanzania has evolved over the past 70 years. President John Magufuli, who took the reigns of power in Tanzania in 2015, referred to the 10 billion dollars loan for port construction agreed upon by the previous administration as “terms and conditions only a drunkard would accept”.
The President then proceeded to rescind the project and then followed it up with an attempt to nationalise most of Tanzania’s resources up until he died in 2021. Until Magufuli brought a decline in concessional loans from China, large-scale projects, such as a four billion dollars pipeline from Uganda to Tanzania under construction, were considered notable.
Aslak Orre and Muhidin Shangwe, lecturer in the Department of Political Science & Public Administration at the University of Dar es Salaam, also presented the cautionary tale of Mozambique, which is faced with a severe debt crisis. Mozambique averaged seven percent real GDP growth in the early 2000s and regularly registers more than double the debt to GDP ratio, which reached 122pc in 2020. The country borrowed heavily from external donors, particularly China, following a resource boom in 2006 to finance large-scale infrastructure projects.
While it had no debt to China before the resource boom, it now owes over two billion dollars, which is 20pc of its total external debt. The researcher, which had previously published a report referencing the hidden debt of Mozambique, estimates the actual cost of the borrowing at around 11 billion dollars in reduced economic activity and dragged two million people under the official poverty line.
Most of the borrowing financed large-scale infrastructure projects like bridges and roads. The Maputo bridge is an example of a Chinese-financed edifice, called “the bridge to nowhere”, owing to its 680 million dollar construction cost and little to no use. Another grandiose project in Mozambique was the Maputo ring road project stretching 74Km which cost about 300 million dollars.
The similarity of these projects to Ethiopian infrastructure projects currently undergoing is unmistakable. The Addis Abeba -Djibouti railway at four billion dollars, the ‘Beautifying Sheger’ initiative at 250 million dollars, and a 1.8 billion dollar electric transmission lines to industrial parks are but a few of Chinese funded infrastructure investments.
Gedion Jaleta, CEO of the Center of Excellence International Consult, embellished China’s economic engagement in Africa as ‘aid mixed with investment’. He heralded China’s non-interference in politics as market and trade orientation while indicating that bilateral trade between Ethiopia and China has reached six billion dollars.
Gedion ascribed the responsibility in the management of loans to be falling in the hands of host governments, and loans are not bad by themselves.
Life of the Party: Lemmawossen Sebhatu Dies Age 73
Weighing the profit margin and analysing risks while contemplating a business idea is forte of a savvy businessperson. Lemmawossen Sebhatu was a pro when it came to that. His children admired his ability to play with numbers at breakneck speed and come up with an answer. He grew up counting coins. His advice to his five children had always been to start small.
Although from a well-established background, Lemma as he was fondly referred to, has been financially independent since his teen years. The son of the founder of Bihere Tsige Park was not interested in getting his hands dirty with gardening but rather focused on sales. Scaling up to be the best salesman at the insurance firm he worked at, he decided to leave the employment arena. He started his own business in his early 20s.
His brother Solomon Sebhatu remembers Lemma always generated unique business ideas. In a time when print was unfamiliar to many, he set up the printing house Ethio Graphics, located around the National Theatre, which became popular with offices that ordered prints and photocopies in bulk. He also took on the role of printing out plan designs for upcoming industrial projects.
Lemma loved photography. He owned the latest camera then, with a long-term plan to convert his business model into industrial photography.
His sociable behaviour, coupled with the nature of his work, acquainted him with the movers and shakers of the town.
The time was in the late 70s when Ethiopia was broiling over a revolution. Lemma’s once-known close acquaintances turned into foes. As the pressure mounted, he was forced to leave his family and well-established business and move to the US in the mid 80s. Following his abrupt decision, what awaited him in the unknown world was not easy.
He had to start from scratch, working minimum wage at a printing press. Through the years, he ended up managing the place.
“It’s a testament to how quick he was,” said Solomon.
When talking about the uneasy times, Lemma often mentioned learning about his mother’s passing and how he dealt with the loss alone.
As the second-born of eight and oldest son, he took on the role of mentoring his siblings from an early age. The bond he had with his little sister, Tigist, was unmatched. Humour may have been one of the qualities she shares with her brother, as she accredits their special connection to never challenging him, unlike the rest.
She was also the first from the family to join him in the US. From partying in the capital to opening her first business, Lemma took her by the arms, nurturing, coaching, and encouraging her to pursue the hospitality industry.
His love for art is reflected through the paintings on the walls of his house as his easygoing lifestyle is projected in the office. He measured performance on the output rather than enforcing strict work hours. Tsega Gebregziabher, Weletu as he called her, has worked with him for over a decade. She recalls spending the last Father’s Day at Lemma’s residence with a cake, a gesture she did not make to her own father. Likewise, he demanded to meet and get to know her husband moments after the marriage proposal before giving his blessing. He was the person she depended on, with the ability to melt what seemed like an iceberg of problems.
How he used to greet her by exclaiming “hey girl!” As the door opens would be one of the many gestures she will miss.
Indeed, the independent yet dependable, humorous, all the while being mentor, Lemmawossen Sebhatu, who passed away on January 12, 2023, and was laid to rest at the Kechene Medhanealem the following day, will be missed by many. He knew how to maintain his friendships as most have outlasted half a century.
His long-time friend Yilma Kebede (PhD) has been around since primary class, when both genders used to be enrolled in Nazareth School, later moving the boys to St. Joseph School. He remembers how benevolent Lemma was even in the early days, making friends with younger and older students.
Even in times of hardship, Yilma does not remember where the two lost contact. He is in awe of Lemma for pushing him to move back and assisting him to settle.
The same goes for Getachew Birbo, CEO of MOHA. The kind-hearted Lemma sometimes needed a push to navigate the bureaucracy, and Getachew says he took on the role. Their Sunday meetings to discuss what went down during the week and lay out plans will stay in the memory of Getachew for the rest of his life.
When the revolution died and the seemingly peaceful wind started to blow, Lemma, the fashionista who used to roam around the capital with his green Volvo, returned home in 1997. His decision was as abrupt as his departure.
Besides warming up to corporates and NGOs with a business proposal to print the first plastic security cards, he charmed his way around his wife, Kibeb Tesfaye. She admits his sophisticated attire and well-groomed appearance intrigued her the first day he went to her office. However, what had captured her heart was the level of understanding as she confided in him in the subsequent days.
Lemma’s big break following his return took three years to convince bank executives, finally partnering up with Dashen Bank and introducing the ATM.
“His revolutionary ideas took a while to warm up to,” said Kibeb.
He co-founded (Sebhatu & Sons), SS Communication Plc with three of his siblings, pioneering the introduction of international payment card acquiring and card payment services to Ethiopia. Partnering with international companies from Germany and Turkey, it provides banking solutions and imports ATM and POS machines. The company led the way in providing the central bank with a money shredder machine.
Celebrating his 73rd birthday in June, he planned to retire at 75 through his latest project, producing artisan cheese. He had acquired the machinery from the US with a cold room set up at the house, ready to process the handmade cheese with a complex flavour. The savvy businessman was known to be facetious with life and as most would agree, it worked for him.
“We celebrate his life, not mourn,” said Solomon. “He lived life the way he wanted to.”
Trailblazer Energy Firm LydetCo Goes Off-Grid
On the capital’s outskirts, at about 400 meters from the Ayat roundabout, sits a sparkling white building with the logo LydetCo plastered all over it. A casual glance at the six-storey building reveals little to leave a lasting impression, but a closer look and one notices that no electric power lines are extending to it.
The building was operational since the dawn of the new year and solely relies on the cascading 108 solar panels on the top floor, with the design and installation of the solar system costing 2.5 million Br. The energy production of this building peaks at around 160Kwh day in the dry season, dwindling to 120Kwh with a cloud cover. The amount is close to the energy consumed by a couple of dozen households.
LydetCo Plc is a company that has been engaged in the import and distribution of solar-powered equipment for close to two decades. Its founder Dereje Walelign is a Civil Engineer who graduated from Addis Abeba University. Born and raised in the capital around ‘Semien Hotel’, he started the company sequential to 14 years of employment at Shell Ethiopia.
Hearing stories of people dying after retirement, sent a sense of urgency for re-evaluation to Dereje. He mustered all the funds he could find and went on a quest for self-employment. He only had a general understanding of the energy sector. British Petroleum (BP) was the only international company at the time sending solar-powered products to Ethiopia, Dereje reminisces. With a paid-up capital of 100,000 Br, he leaped on an entrepreneurial adventure importing items from BP until their exit from the sector in 2011.
Two decades later, LydetCo has a yearly turnover of about 50 million Br and around 25 permanent employees. Thousands of homes retain their lights during power outages.
For Dereje, the idea to construct a building powered by the sun ensued from growing demand in the market to have year-round electricity that is not contingent on the performance of the national grid. The building finalized construction last year and generates about five times more than needed. It has a 24-hr running elevator and power-office equipment for LydetCo and other building tenants.
The digital era makes it possible to monitor the performance through an app on his smartphone but Dereje comes to the office daily to oversee operations.
“I’ll be working till it becomes impossible to do so,” he told Fortune.
The company currently distributes two primary products: photo-voltaic – converting light to electricity- and thermal systems. The solar panels arranged on the roof of its building are cells made of Silicon which transform the energy from the sun into electricity. The second most abundant element on the Earth’s crust is a commonly used material for constructing solar panels.
A researcher at Bell Labs in the 1940s discovered Silicon to be ideal for creating a junction that allows the photoelectric effect, heralded as answering the quest for limitless energy by US media.
The other line of primary products offered by LydetCo is a solar-powered water heater infusing a circulating pump, a thermal panel and a tank. The working principle requires energy collected from the sun to heat the water and store it without cooling down and distributing it when necessary from inside. The size of the system depends on the power requirements of the client. Prime Minister Abiy Ahmed’s (PhD) old office at the Science & Technology Bureau and hotels such as Renaissance and Soramba are among the institutions with large installations.
Although sufficient for sharing with neighbouring buildings, the absence of a legal framework for selling solar power prevents the company from spreading its wings.
The total cost of system design and installation comes with various prices depending on the power requirements and necessary battery capacity. He estimates that somewhere around 1.5 million Br is what it would cost for a suburban-style home in the capital. The system comes with a host of energy solutions that allow remote controlling, constant reporting on home power usage, and problems in the localised grid. It includes a solar panel, an inverter and batteries, other than features similar to any home electricity system.
“Empirical data collection is significant,” he said.
The restless Dereje has also been working to introduce solar-powered cooking under the moniker Jember. The locally assembled solar cooker received patent rights from a US-based company that works in the same principle as the thermal heater system. With a price tag between 8000 Br – 9000 Br, it is better suited for slow cooking as it takes around two hours for a pot of ‘Shiro” to get ready.
According to him, the company has around 300 cookers, while it has suspended importing raw materials due to forex shortages. His ‘never quit’ attitude shines through as he expects the culturally inconvenient ‘Jember’ absorption into the market through a promotional campaign.
“The public has to be familiarised with solar cooking,” he said.
LydetCo has worked with Ethiotelecom, UNECA, and several international businesses, but the water pump installation in more than 10 areas in Afar, Oromia and Amhara regional states stays a proud moment. The company is waiting for the ratification of a directive under the Ministry of Water & Energy to build an electric car charging station.
Ethiopia has abundant solar power year-round, ready for harvest. The International Development Association (IDA) under the World Bank approved a 500 million dollar credit for the country in March 2021 to facilitate universal electrification by 2025.
Mesfin Dabi, a consultant on several projects by the Ministry of Water & Energy, sees LydetCo’s approach to the energy sector as extremely promising. He outlined the benefits that a system of this caliber offers to the environment, the national grid and the companies that use it. The expert emphasised the heavy toll on the environment diesel power generation creates in factories.
He believes solar power offers an expansion of capabilities for the public. The data gathered by looking at power usage for companies using a system like LydetCo’s is helpful in decision-making.
Mesfin suggests solar as an alternative energy source for small-scale factories, reasoning spending a couple of million Birr at the start is minuscule considering long-term payback periods.
“The grid system is overloaded,” he said. “Solar offers an ideal alternative.”
How Not to Fight Inflation
Despite favourable indices, it is too soon to tell whether inflation has been tamed. Nonetheless, two clear lessons have emerged from the recent price surge.
First, economists’ standard models – especially the dominant one that assumes the economy always to be in equilibrium – were effectively useless. And, second, those who confidently asserted that it would take five years of pain to wring inflation out of the system have already been refuted. Inflation in the US has fallen dramatically, with the December 2022 seasonally adjusted consumer price index coming in just one percent above that for June.
There is overwhelming evidence that the main source of inflation was pandemic-related supply shocks and shifts in the demand pattern, not excess aggregate demand, and certainly not any additional demand created by pandemic spending. Anyone with any faith in the market economy knew that the supply issues would be resolved eventually; but no one could possibly know when.
After all, we have never endured a pandemic-driven economic shutdown followed by a rapid reopening. That is why models based on past experience proved irrelevant. Still, we could anticipate that clearing supply bottlenecks would be disinflationary, even if this would not necessarily counteract the earlier inflationary process immediately or in full, owing to markets’ tendency to adjust upward more rapidly than they adjust downward.
Policymakers continue to balance the risk of doing too little versus doing too much. The risks of increasing interest rates are clear: a fragile global economy could be pushed into recession, precipitating more debt crises as many heavily indebted emerging and developing economies face the triple whammy of a strong dollar, lower export revenues, and higher interest rates. This would be a travesty. After already letting people die unnecessarily by refusing to share the intellectual property for COVID-19 vaccines, the United States has knowingly adopted a policy that will likely sink the world’s most vulnerable economies. This is hardly a winning strategy for a country that has launched a new cold war with China.
Worse, it is not even clear that there is any upside to this approach. In fact, raising interest rates could do more harm than good, by making it more expensive for firms to invest in solutions to the current supply constraints. The US Federal Reserve’s monetary-policy tightening has already curtailed housing construction, even though more supply is precisely what is needed to bring down one of the biggest sources of inflation: housing costs.
Moreover, many price-setters in the housing market may now pass the higher costs of doing business on to renters. And in retail and other markets more broadly, higher interest rates can actually induce price increases as the higher interest rates induce businesses to write down the future value of lost customers relative to the benefits today of higher prices.
To be sure, a deep recession would tame inflation.
But why would we invite that?
Fed Chair Jerome Powell and his colleagues seem to relish cheering against the economy. Meanwhile, their friends in commercial banking are making out like bandits now that the Fed is paying 4.4pc interest on more than three trillion dollars of bank reserve balances – yielding a tidy return of more than 130 billion dollars annually.
To justify all this, the Fed points to the usual bogeymen: runaway inflation, a wage-price spiral, and unanchored inflation expectations.
But where are these bogeymen?
Not only is inflation falling, but wages are increasing more slowly than prices (meaning no spiral), and expectations remain in check. The five-year, five-year forward expectations rate is hovering just above two percent – hardly unanchored.
Some also fear that we will not return quickly enough to the two percent target inflation rate. But remember, that number was pulled out of thin air. It has no economic significance, nor is there any evidence to suggest that it would be costly to the economy if inflation were to vary between, say, two percent and four percent. On the contrary, given the need for structural changes in the economy and downward rigidities in prices, a slightly higher inflation target has much to recommend it.
Some also will say that inflation has remained tame precisely because central banks have signaled such resolve in fighting it. My dog Woofie might have drawn the same conclusion whenever he barked at planes flying over our house. He might have believed that he had scared them off, and that not barking would have increased the risk of the plane falling on him. One would hope that modern economic analysis would dig deeper than Woofie ever did.
A careful look at what is going on, and at where prices have come down, support the structuralist view that inflation was driven mainly by supply-side disruptions and shifts in the pattern of demand. As these issues are resolved, inflation is likely to continue to come down.
Yes, it is too soon to tell precisely when inflation will be fully tamed. And no one knows what new shocks await us. But I am still putting my money on “Team Temporary.” Those arguing that inflation will be largely cured on its own (and that the process could be hastened by policies to alleviate supply constraints) still have a much stronger case than those advocating measures with obviously high and persistent costs but only dubious benefits.
Is Two-decade Too Short to Realize the Hankered Africa Union (AU) ?
From the inception of the Organization of Africa Unity (OAU) to the Africa Union Commission (AUC) of today, the journey for the continent has not been easy to realise the “Africa we want”. After two decades, peace, trade and security remain the top concerns for Africa.
The Africa Union and its member states tried to establish sound programs and deepened many institutions placed or renewed as many of its leaders transitioned. The continent’s most considerable governance body introduced policy frameworks, but most people are trapped. Poverty is one of these traps.
It has deepened in different forms and formats in many parts of the continent. Inequality creates immense disruption from social, cultural, and economic to politics. It is Africa’s reality.
Issues of poor governance and high corruption are regular in the public news bar. From unconstitutional changes of governments to environmental degradation and desertification, Africa has been portrayed as the “darkest continent.”
Depending on the lens used, the performance of the OUA/AU has been better with the African Union than left alone. Despite several shortcomings, the Commission celebrates “Africa Union at 20” this year.
Conceived in Durban, the Africa Union has achieved a lot in trade, peace and security architecture, although insufficient to address the issues and advance the cause. African leaders and elites produce, adopt and declare a lot of policy formations, reaffirming strategies by establishing the Africa Union Commission.
Commitment towards the new AUC path, built around the pan-African vision of an integrated, prosperous, and peaceful Africa, is progressive and driven by its citizens, representing a dynamic force in the international arena.
Under the Commission, Agenda 2063 is based upon past and existing continental development initiatives such as the Lagos Plan of Action for the Economic Development in Africa (1980) and the New Partnership for Africa’s Development (NEPAD) (2001), now named Africa Union Development Agency (AUDA-NEPAD). It also considers a review of Africa’s development experience, global trends, and possible development scenarios.
For the past two decades, the challenges with the Union have mainly come from cascading and implementing roadmaps and action plans. For instance, the first 10-year implementation plan for Agenda 2063 was expected to accelerate Africa’s political, social, economic, and technological transformation.
Collectively citizens of the continent demanded self-determination, freedom, progress, and collective prosperity. They expect fast-track projects and initiatives which are supposed to be implemented. Action plans and programs must be in line for the growth and transformation of the continent. But some development programs and projects are still in limbo.
For the Africa we want, time flies, but it is not too late. Africa still has time to revitalise its progress. The Union needs to accelerate and allocate resources with a high level of political will and commitment to transforming Africa into the global powerhouse of the future.
Africa needs to question the pace and the progress it has made in the past and convene a message with the priority areas outlined in the 50-year framework document. We need to evaluate progress in human capital development, agricultural value addition and agro-businesses development.
We need to work on employment generation, especially the youth and females, provide social protection and promote gender development, youth empowerment, and good governance. Nurturing capable institutions, building infrastructural development, and advancing science, technology, and innovation are the works that need to be accomplished.
The past two decades’ progress can be considered a baseline to reaffirm and continue the adoption and implementation of ratified instruments, protocols, and treaties to promote good governance.
The AU needs to promote human rights and the inclusion of women and youth in its programs. The institution must strengthen conflict resolution and peace-building efforts by strategic foresight to enhance anticipatory governance capabilities and address governance deficiency.
The continent is expected to achieve its aspirations, formalizing good practices rooted in Africa by recognizing and promoting its Africa-led solutions as crucial assets for the continent across sectors. It needs to encourage African-based values and ethics.
All member states must cooperate in multilateral and bilateral relations, prioritising the interests and needs of the continent. AU must keep its culture of continuous learning to respond to changing contexts as well as to apply best practices. It has to address critical issues for good governance, peace, and security and protect and promote human rights. Issues related to the environment need immediate attention, applying technological solutions to facilitate adaptation, mitigation, and disaster preparedness.
The years ahead may not bode well for the continent with more unconstitutional reforms, civil unrest, and popular uprisings. Africa must experience codified norms, standards and legal frameworks to address such challenges. To entrench a strong culture of human rights practice, the rule of law with a high level of member states’ commitment is vital.
Another critical factor that needs policy formulators’ attention is to question the relevance of policies to the continent. Africa missed a lot of golden opportunities.
In the 1970s and 1980s, most African countries adopted policies that were not Afrocentric and challenging to adapt, such as the structural adjustment program (SAP). It was a program that had put member states into debt crises and opened indirect intervention of fiscal policies to lenders. It could be considered a death trap for Africa’s economic, political and social trenches.
Budget shortages negatively affect the continental agenda and are open to being manipulated by external actors, causing AU’s programs, policies, and operations to be unpredictable. Financial constraints and various interests make it difficult for the Commission to measure the impact of its missions.
The following two decades should behold an Africa that will be self-reliant, mobilizing its human and material resources. Africa is left with 30 years to realise its Agenda for 2063. The Commission is expected to bring political and economic stability across the continent.
The Poverty of Anti-Capitalism
Our world has become both confusing and confused. The international economy works well, but the political economy is mired in hostility toward markets, frustration at globalization, and scepticism about growth. Each of these beliefs interacts with and reinforces the others. Even large segments of the global elite are wringing their hands over the perceived failures of markets, globalization, and growth.
It is easiest to see where the hostility toward markets came from.
Markets depend on prices, but prices have become a source of anxiety and puzzlement for many people. Not only have prices risen, but many 21st Century marvels have no obvious price at all. Consumers are now accustomed to universal internet connectivity and freely available services like search engines. They can download or stream an infinite supply of entertainment, and they are saturated in news media – most of which they do not pay for (at least not in any traditional sense).
In many countries, people also receive medical services apparently for free. Even America’s notoriously expensive healthcare system handed out COVID-19 vaccinations and tests.
At the same time, expansive fiscal and monetary policies, along with supply-chain disruptions stemming from the pandemic and Russia’s invasion of Ukraine, have fueled inflation, making everyday existence (energy, food, housing) feel more expensive. We have a vision of the future in which everything is free, yet our current reality feels unaffordable and exploitative. With citizens demanding government intervention to moderate or reverse the price surges, politicians face enormous, irresistible pressure to respond.
But those responses often make matters worse.
When governments try to hold down prices, demand continues to rise, and shortages of basic goods persist. These shortages then fuel concerns about the economy’s dependence on distant resources – be it Russian gas, Taiwanese semiconductors, Chinese electronics, or Indian antibiotics.
The dangerous fallacy has replaced a naive trust in global interconnectedness that it would be better to unwind all those international linkages and respond nationally to national needs. The pandemic and Russia’s war have intensified the apparent slowdown in globalization that began with the 2008 financial crisis. National self-sufficiency is the new order of the day.
That brings us to the new scepticism about growth. Though deglobalization cannot fail to make resources costlier, some will ask whether we even need so many distant goods in the first place.
Shouldn’t we stop thinking primarily about economic growth, and start focusing on the sustainability that we could achieve through simpler lifestyles?
Books outlining this no-growth or degrowth agenda have become best-sellers. In Japan, philosopher Kohei Saito argues that capitalism has reached its environmental limits and needs to be replaced by degrowth communism. In Germany, journalist Ulrike Herrmann follows the same logic to forecast an “end of capitalism.”
But the appeal of this message lies less in its logic than in its intended audience.
Japan and Germany are extreme cases of a demographic phenomenon widespread across advanced economies and – more recently – in China, too. Birth rates are declining, and people have been living longer, resulting in societal ageing and shrinking populations. Longstanding concerns about economic sustainability have thus mixed with newer fears about the old rigging the political system to their advantage. But, as economists Charles Goodhart and Manoj Pradhan contend in an important 2020 book, these demographic trends and the backlash against globalization will not help. On the contrary, they jeopardize the foundation of price stability.
To be sure, the new anti-growth manifestos at least try to offer a blueprint for an alternative, non-price-based, non-globalized economy. But the historical parallels they draw are deeply flawed. For example, they take inspiration from World War II Britain, where strict rationing ensured that the rich could not consume too much. But, in fact, in the 1940s Britain was extraordinarily dependent on the United States – that is, on external supplies and an external productivity revolution.
As in every controlled economy, Britain suffered shortages, and a black-market economy run by shady dealers and spivs emerged. It is precisely these kinds of underground, opaque markets that foster corruption, distrust, and social decay. The alternative to a transparent market economy is not a rationally administered economy but a worse form of capitalism.
Some planned systems are so rigid – so unresponsive to feedback – that they break under the pressure of scarcities. As the brilliant Hungarian economist János Kornai showed, shortages – and the hoarding and dysfunctionality that accompany them – undermined and eventually destroyed communist command economies in the 20th Century.
Dealing with today’s global challenges requires honest prices that reliably convey cost information, not price suppression. But that, in turn, will require considerable innovation and ingenuity. For example, we may need negative prices to make clear to consumers that “free” digital services are selling their personal information; in other words, one’s data should command a positive price.
The environmental case for accurate pricing is even more obvious. Polluters must not be allowed to escape paying the real price for their activities. And market-set energy prices are needed to spur consumers to reduce their carbon footprint and signal investors to channel resources to cheaper non-carbon energy sources.
The market mechanism derives its power from the way it generates a multitude of dynamic, interacting responses – an emergent phenomenon that any planner in an economy of scarcity cannot replicate. The externalities of economic action need to be priced so that the market can function properly. Transforming the economy for the better calls for boldness and imagination, but it also requires the kind of concrete knowledge that only the price mechanism can generate. Growth provides the resources we need to tackle big problems. But to achieve it, we also need markets and interconnectivity.
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