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Month: May 2023

Ethiopia’s Internet Shutdowns Choke Its Economy, Freedom

Posted on by Tizita S.

Asilent war is being waged in Ethiopia, one that is suffocating the life out of the internet, subjugating the free flow of information, and choking the economy in the process.

Ethiopia’s onslaught on digital liberty is not unique, but it is becoming notorious for these digital blackouts. These are not mere temporary blips, either. Network blockages can last from mere minutes to agonising months. The fallout is far-reaching, infiltrating the everyday lives of individuals, hampering businesses and impairing essential services.

The rationale for such drastic measures varies. Justifications provided by the authorities include thwarting exam cheating, safeguarding national security, quelling protests, and dampening strikes. But detractors decry the pretextual nature of these explanations, observing a disturbing pattern in applying the internet blockades. Critics believe that these outages are, in fact, strategic instruments of control, employed to censor information and maintain a firm grip on the national narrative.

This phenomenon has gained ominous momentum under the current regime, where politically motivated internet shutdowns have taken on an insidious gravity.

The implications of such curbs on digital freedom are as extensive as they are troubling. Journalists and activists, the supposed vanguards of truth, find themselves hamstrung, unable to document alleged human rights violations and abuses committed by state and non-state actors. But the domino effect of internet shutdowns extends far beyond curtailing freedom of speech and hampering access to knowledge.

The socio-economic and political landscapes have been profoundly disrupted. The country haemorrhages millions of dollars daily, with its populace reeling from the disruption of essential services and economic activities. More alarmingly, individuals’ fundamental rights and freedoms are jeopardised, including the sacrosanct right to freedom of expression. A wholesale deprivation of the right to access information imperils the vitality of a rule-based society.

For individuals caught in this maelstrom of digital silencing, the internet shutdown deprives them of accessing online news, constraining their ability to make informed decisions. It also disconnects them from peers and relatives, severing an essential line of communication in an increasingly interconnected world. This lack of communication often ignites social unrest, escalating the potential for rioting and violence.

The internet shutdown also throws a wrench in the operations of essential services such as healthcare, education, transportation, and banking. The fallout of this social and economic disruption disproportionately affects the most vulnerable. The connection between internet shutdowns and a surge in human rights violations cannot be overstated. Reports of censorship, violence, discrimination, unlawful arrests, and detentions are becoming increasingly common.

The grim financial reality is that Ethiopia loses a staggering 4.5 million dollars daily of an internet shutdown. The financial toll amounted to an eye-watering 146 million dollars last year alone. The disruption leaves individuals and businesses floundering, unable to access or provide crucial online services. Gig workers are particularly vulnerable, their livelihoods dictated by their ability to connect online.

These internet shutdowns are breeding grounds for distrust and fear, a climate that can ripple through society’s fabric. The deleterious psychological effects cannot be underestimated. With increased isolation comes heightened stress, anxiety, and depression. As public trust in the state erodes, the social contract becomes increasingly fragile.

The grim reality is that the weaponisation of internet access has become a new normal. A deeply entrenched pattern of repeated shutdowns is exacting a high price on the country’s economy, costing millions each year. This form of censorship is essentially cutting off Ethiopia from the rest of the world.

The stark conclusion is that the internet shutdowns have far-reaching socio-economic and political implications, potentially exacerbating poverty as businesses flounder and global markets for goods and services become inaccessible. The outcome is a population hamstrung by lost wages, missed educational opportunities, and a waste of precious time and effort. And yet, the Ethiopian government seems oblivious to the economic, social, and political cost of this digital onslaught.

This raises the question: how long can a country bleed millions of dollars, have its people live in the shadows of information darkness, and withstand the tremors of an increasingly restive society?

The evidence of the deleterious impact of these shutdowns is irrefutable. Yet, despite the mounting international pressure and the constant pleas from its citizenry, the Ethiopian government appears to be doubling down on its strategy of digital repression.

Yet, the growing toll on its populace and the economy might force a rethink soon. The authorities need to consider the long-term damage being done to its international standing and its people and work towards a more open and inclusive internet policy. Internet shutdowns are not just an affront to human rights but also carry a heavy economic penalty. Ethiopia’s experience highlights the need for a balanced approach where the internet should not be seen as a tool of repression but as an instrument of empowerment and progress.

The international community must play a more active role in encouraging the authorities to uphold the fundamental right to internet access. They must step up to the challenge of creating an atmosphere of trust rather than one of fear. It is time to recognise that the Internet is no longer a luxury but a necessity, a public utility that is as fundamental as water and electricity.

Indeed, Ethiopia has reached a pivotal moment in its digital history. Its future trajectory will significantly depend on the government’s willingness to adapt to an increasingly digital world and protect citizens’ rights to access the global digital community. It is time for Ethiopia to end this cycle of information deprivation and economic stagnation. I only hope that this realisation will dawn sooner.

Growing Out of the Developing-Country Debt Crisis

Posted on by Tizita S.

The sovereign-debt crisis was high on the agenda at this year’s Spring Meetings of the World Bank and the International Monetary Fund (IMF), with all eyes on China, the biggest creditor to the developing world, and the International Development Association (IDA), the Bank’s fund for the poorest countries. With many low-income economies already in or at high risk of default, China has been reluctant to write down the value of its loans and insistent that multilateral institutions, including the IDA, share the burden alongside other creditors – a contentious stance that breaks with convention.

There are strong arguments against IDA participation in debt restructuring. Its loans are highly concessional, with an average grant element of 50pc, compared to zero percent for market-based loans and 18pc for Chinese debt. In recent years, its commitments have surged in the face of multiple shocks, reaching 42 billion dollars in 2022. Moreover, it provides its financing through grants, rather than loans, to countries with high debts – self-termed “ex-ante implicit debt relief”.

It would be grossly unfair to the taxpayers backing it if the IDA bailed out other creditors not once, but twice.

During the Global Sovereign Debt Roundabout, a centrepiece of the Spring Meetings focused on facilitating the debt-restructuring process, China apparently agreed to the Bank’s proposal to offer more lending through the IDA, rather than taking a haircut on outstanding debt. This agreement must still be clarified, but it could be a win-win: China’s cooperation with the IMF, together with more concessional financing by multilateral development banks, would go a long way toward putting poorer countries on a greener and more sustainable growth path.

For the IDA, the current question is how to operationalize this agreement in ways that help it regain its financial footing and effectiveness. The global debt crisis is weakening the three main ways in which the IDA funds its operations: debt service on past loans (seven billion dollars in 2022), contributions from donors (around 24 billion dollars every three years), and market borrowing.

Offering grants reduces future debt-service payments. Since 2010, the IDA has provided 81 billion dollars in grants. If these had been loans, the IDA’s current portfolio of 180 billion dollars would be nearly 50pc larger, producing more debt-service flows and greatly strengthening its borrowing capacity. The IDA’s balance sheet will continue to suffer as long as the debt crisis lingers, causing more grants to be issued.

The IDA’s disbursements are now leaking to bilateral and private creditors. Recent empirical work shows that in highly indebted countries, one dollar of net transfer from the IDA was associated with 60 cents of net outflows to other lenders in 2021. Conversely, IDA disbursements spur inflows from other creditor sources in countries that are not highly indebted. Unsustainable debt burdens thus weaken the IDA’s effectiveness. A rise in donor contributions seems unlikely without progress on the debt problem, further reducing the IDA’s borrowing capacity.

The IDA’s well-being thus requires a quick resolution of the debt crisis. Sharing the burden of debt restructuring can help accelerate progress. This requires looking forward rather than looking back.

Suppose, for example, that the IDA contribution was determined by using comparability of treatment (CoT) rules based on past disbursements. A straightforward application of the traditional form of the rule in the case of Zambia, which has been trying to restructure its debt since it defaulted in 2020, would imply a 44pc haircut for all creditors, including the IDA. This would result in a loss of 335 million dollars. A more equitable method would reduce the IDA’s debt only when other creditors’ loans are written down to the point where they are equally concessional.

This fairer rule would result in a loss of 234 million dollars. We estimate that a similar treatment for all low-income countries currently in debt distress would cost the IDA between 3.5 billion to 7.6 billion dollars in haircuts.

Depending on which rule is used, these contributions would lead to a 70pc to 100pc increase in concessional lending to Zambia over the next three years. For all countries in debt distress, the estimated additional loans would be smaller, in the range of 20pc to 40pc above current IDA disbursements.

The main problem with a backwards-looking approach, however, is that it ignores the fact that the IDA is not a normal creditor. Over the course of the next decade, the IDA will provide large concessional net transfers, which include more grants than the losses implied by both CoT rules. For example, Zambia’s current IDA grant-equivalent allocation for the next decade would be over one billion dollars, much more than the loss implied by CoT rules (though the losses we estimate are exaggerated, as they ignore that the IDA previously provided large grants in addition to concessional loans).

The best way to facilitate rapid debt crisis resolution is to increase future contributions. In the case of Zambia, the current debt-sustainability analysts is predicated on a 4.5pc growth rate. If the IDA’s disbursements were to rise, Zambia would grow faster out of its debt crisis, and the losses suffered by creditors would be smaller – the outcome China is attempting to achieve in the ongoing negotiations.

This solution also aligns with the World Bank’s desire to increase its financial capacity as part of its ongoing efforts to scale up operations. There have been calls to double IDA funding over five years in this context. This would enable larger disbursements to countries suffering a debt overhang, which would, in turn, accelerate their recovery. But the IDA is already under pressure, having spent most of the resources of its current funding cycle, which ends in mid-2025.

To start scaling up its funding, it needs fresh resources. The Bank’s new crisis facility, which sits within the IDA, would be the ideal vehicle.

When stakeholders reconvene at the Summit for a New Global Financial Pact in June, they should focus on accelerating debt-restructuring negotiations and expanding the IDA’s lending capacity. Progress toward each goal requires progress toward the other. Unless both directions are pursued, the current vicious cycle will only persist.

The Dream and the Dilemma of Africa’s Single Currency

Posted on by Tizita S.

It is an ambitious plan that sees the African Union (AU) striving to create a single currency for the continent, marking a crucial part of its economic integration strategy. The initiative, crafted within the broader design of the Abuja Treaty of 1991, aspires to pool regional economic communities (RECs) or blocs into a unified African customs union and create an African Central Bank, issuing the single currency – the Afro or Afriq – by 2025.

A monetary unification of this magnitude has its potential rewards but also poses significant challenges.

The groundwork is being laid through building blocks of monetary unions within five key economic communities: the West African Economic & Monetary Union (WAEMU), the Economic & Monetary Community for Central Africa (CAEMC), the Arab Monetary Union (ArMU), the Southern African Monetary Union (SAMU), and the East African Monetary Union (EAMU), all under the umbrella of the proposed African Monetary Union (AMU).

The West African and Central African regions currently use the French Franc, fostering seamless intra-regional transactions. However, friction arises when transactions span across different communities.

The scenarios to address this challenge broadly fall into three categories.

The first is facilitating intra-bloc transactions like domestic ones, reducing currency exchange risk. In essence, this scenario bypasses the difficulties of cross-regional transactions by enhancing trade within a singular currency area. It is a safe strategy, guarding against price instability and financial crises.

A more complex scenario envisions transactions between two different blocs. Imagine a merchant in Gabon (CAEMC) importing a car from Kenya (EAMU). The payment might be made in Francs but eventually converted to Dollars for the Kenyan trader. This scenario’s inner workings reveal a tricky situation. The CAEMC Central Bank, although appearing to function normally as it exchanges Francs for Dollars, in reality, exhausts its reserves in the process.

It is left with the power to regulate and issue Francs, but without the Dollar reserves, the Bank cannot effectively control price stability and ensure the smooth functioning of interbank exchanges. This could lead to a vicious inflationary cycle, with constantly rising prices and a steady local currency devaluation.

The last scenario envisions an optimistic future of a unified African currency, mandating a supranational organization to handle the monetary policies of member states. It would act as a control mechanism over member states, potentially eliminating macroeconomic uncertainty and inviting foreign direct investment.

Proponents of the single currency project often highlight three primary benefits: low inflation, economic growth, and greater unity among African nations.

Indeed, the single currency might boost intra-African trade, a fact supported by studies indicating that countries sharing a common currency trade three times more than those with different currencies. The AU may use the single currency as an instrument to ensure stability and ward off financial and economic aggressions. This could also reinforce Africa’s ability to handle internal conflicts, uphold democracy, and strengthen the continent’s position on the global stage.

Let’s explore a potential future transaction in this unified currency, where a Kenyan trader imports coffee from Ethiopia.

Simple, it may seem, but complexities abound when one delves into public spending. Members of a single currency union enjoy reduced transaction costs, price transparency, and the elimination of exchange rate uncertainty, to name a few. However, the costs of the union come into play when considering the sovereignty over a monetary policy that countries would have to forfeit. Especially if the shocks affecting the economies are asymmetric, the cost of joining a single currency union can be pretty high.

Countries with fiscal imbalances due to inefficient tax collection or excessive public sector spending could exert pressure on central banks to finance the deficit, potentially leading to inflationary pressure. The tension could also extend to commercial banks, which might be forced to lend to state-owned enterprises without proper safeguards, leading to a mounting pile of bad debts and raising the speculation of potential bank failures. Such a scenario occurred in the 1980s in the Communauté Financière Africaine (CFA) zone.

Many African countries, which may not be particularly competitive and may have inflexible labour markets or excessive private and fiscal debt, could face liquidity issues, leading to sovereign risk in the financial system. While a single currency might initially offer a boost in trade and promote economic unity, the risks inherent to its implementation could lead to monetary instability and a resultant economic fallout.

African Continental Free Trade Area (AfCFTA) is an ambitious project that could reshape the continent’s economic landscape. Yet, as with any significant monetary endeavour, it carries a risk. If not handled meticulously, the one-currency utopia could turn into a devastating whirlpool of economic instability.

While a single African currency may indeed offer many benefits, such as boosting trade, lowering inflation, and fostering unity, the risks and complexities involved in its implementation demand careful consideration. Africa’s leaders will need to balance these risks with the potential benefits and have in place robust strategies to deal with the potential challenges that could arise.

Essentially, the dream of a single African currency is tantalizing, promising increased intracontinental trade and unity. But as the old saying goes, the devil is in the details. And in this case, the details are knotty and complex, requiring careful navigation and cautious implementation. A crucial factor is managing the economic disparities and diverse fiscal policies across member states. Creating a unified economic and monetary policy to cater to nations with varied levels of economic development, political stability, and fiscal discipline would require extraordinary consensus-building and diplomatic skills.

An institutional design will be paramount in achieving a monetary union. The European Union’s eurozone provides both a blueprint and a cautionary tale. Establishing a supranational entity like the European Central Bank has primarily worked to maintain price stability, but the lack of a unified fiscal policy has led to significant challenges, particularly in times of economic crisis. This dichotomy is something Africa’s policymakers must consider as they plan the African Central Bank (ACB).

Another concern lies in the potential for larger economies to dominate the union at the expense of smaller ones. Economically dominant countries may sway monetary policy to their advantage, leaving less prosperous countries on the economic back foot. This requires a fair system where influence in the ACB reflects the economic reality but does not create an inequitable balance of power.

On the positive side, the single currency could serve as a platform for Africa’s voice in global economic forums, giving the continent a stronger bargaining position on international trade deals and enabling collective resistance against economic exploitation.

The vision of a single currency for Africa is indeed a grand one. However, the journey is fraught with considerable challenges, from managing inflationary pressures and maintaining fiscal discipline to balancing the needs of diverse economies and ensuring a fair system of influence in the African Central Bank. It is an economic tightrope walk where careful planning and well-executed strategies are crucial. The hope is that Africa’s leaders, guided by lessons from other monetary unions and armed with a clear understanding of the potential pitfalls, can guide the continent towards successful monetary integration.

The views and opinions stated in this article are solely the author’s and do not represent the institutions or projects he is affiliated with.

 

The Road to Success is Always Under Construction

Posted on by Tizita S.

A while back, I was asked to cover as a substitute teacher for a friend at her primary school teaching job while she travelled to the United States. The private school around the Bole area had tested my ability with an exam before agreeing to it.

The month-long endeavour had its own thrill. But the school had a teaching guide, which made up for my lack of teaching experience. I enjoyed it to the fullest but the best part was being welcomed by the warm-hearted children.

The primary school students were fun to be around, during class sessions, playgrounds and lunchtimes. I was impressed with how they were treated in a kind, nurturing manner with teachers and caretakers speaking encouraging words and comforting them when they cried.

They are taught to care for their classmates and consider them brothers and sisters by having someone listen to their ideas and complaints.

I have observed the students being counselled for family troubles they have at home. The school has taken time to speak to their parents and make the home hospitable to the children while regular training times are held to train teachers and caregivers on treating and supporting each child.

Teachers are taught how to enhance the children’s academic performance and social interaction. Teachers are encouraged to take each student’s academic and behavioural performance personally as their failure was taken as a problem of their teachers.

Indeed, the high school fees make it possible to facilitate such a nice ambience where values, ethics, and passion to give students a better future are taken seriously. But that is not always the case. I have come to witness children being verbally and physically abused by their teachers despite being enrolled in one of the highly paid-schools.

Private schools are contemplating raising their school fee for next year. They are having trouble reaching to agreement with parents on the rate of increase that led to many parents considering enrolling their children in an affordable institution rather than worrying about quality.

I believe all schools should work on upholding a facility that caters to the needs of students. Abusive and hostile behaviours reported at schools where the follow-up system is rather loose are frustrating.

I met a 10-year-old girl in a hospital with broken fingers. She learns in one of the public schools and the injury was caused by her mathematics teacher who claimed that she had been talking and laughing while class was in session.

She was excited to miss school as it saves her from the mental torment she went through with the teachers usually resorting to reminding students that they come from economically lower backgrounds or have no hope of excelling academically.

On the other hand, her parents did not challenge the teacher or the school about the incident, fearing her grades might be affected. They opt to keep the cause of the accident unspecified while she missed school for over a week.

Teachers referring to children with the low pay job their parents do is a clear indication that they are not well trained on how to handle children and help them navigate through the academic world.

Words that are said to children have an impact. This includes how they are treated at home and school. Negative words, lack of compassion, and physical and verbal harm can hurt children. The internalised words of frustration and anger will haunt them even as adults.

Teachers are expected to model positive and nurturing behaviours, not damage students. They hold the key to students for academic success and emotional stability by being supportive, as seen at the school I taught for a month. It is significant for students to attain academic success.

Instructors should be aware of their students’ observing and listening to them, whether teaching, encouraging, disciplining, or responding negatively. Words can motivate, encourage, support, and boost others or can be used to humiliate, ridicule, discourage, and taunt them.

Teachers should not underestimate their power in shaping future generations. Their work impacts academic, emotional and mental development. They should be trained to have emotional intelligence when students challenge them.

Debt Traps Destabilises Small Businesses

Posted on by Tizita S.

I was standing next to a lady at one of our neighbourhood shops. She was arguing with a shopkeeper to get credit, saying she had been a regular customer for years.

They kept going back and forth, and he decided to give her credit no longer unless she settled her previous debt. I was surprised by her entitlement.

The lady recalled the time she had spent close to 4000 Br and paid for it through mobile banking. She tried to reason that she had a good credit score through the years and was running late with her monthly payment.

She promised to close her account completely in a few days, but it had not been a few days yet. However, the shopkeeper remained firm on his decision. He did not have enough money at hand to restock, as he had given credit to others.

She was furious and threatened to take her spending elsewhere. She claimed other shops nearby have given her and people she knows more credit, pointing out that a business without a customer is nothing.

It got me wondering if it gives customers the right to demand credit. I debated with myself whether the shopkeeper did the right thing by not giving the lady more credit. He could have given her the requested items, considering she had been paying her debts before. But at the same time, he was not obliged in any way to give her credit, even if it meant it would cost him his business.

As inflation hits hard and prices increase exponentially, it is becoming hard for many people to get from one paycheck to the next without taking loans.

The price of commodities doubles overnight, sometimes turning things that were once affordable into luxury items. But people struggle to let go of the items they consider basic, although it becomes inevitable at some point.

Giving out credit is trending in corporate service providers, with prominent corporates such as Ethiotelecom requiring customers to have a history of recharging their balance to be eligible for credit, while a small percent is returned as interest.

But shops do not work like that. The neighbourhood shops are places where people get credit without interest rates.

It all depends on the judgement.

I believe the slogan plastered at most shops that translates as “no credit today; come back tomorrow” should be redefined. The principle of giving credit should not be the problem but how it is done.

Providing credit to trustworthy customers with good scores is a smart move. The rule of thumb must be those eligible must be reliable and regular customers. This will help small businesses thrive and foster a sense of trust and reliability between customers and businesses.

Customers must pay their outstanding debt before asking for another credit. Their behaviour, in turn, shapes shop keeper’s credit-giving behaviour.

Failure to pay debts can significantly impact small businesses’ financial stability and can even lead to their closure. It is crucial to understand the importance of fulfilling their financial obligations- prioritising financial responsibilities which support the growth of businesses and the sustainability of the economy.

HEFTY GREEN

Posted on by Tizita S.

Street vendors around the Shola area take a rest in the shades of the capital’s newly planted trees. Upon reporting on its 10-month performance before Parliament, the Agriculture Minister, Girma Amentie indicated that up to 43pc of the arable land in the country has been rendered acidic. This requires large amounts of limestone to be imported from abroad; the tight forex crunch has not allowed the Ministry of Finance to fund the endeavour easily. Following the rallying call of the Prime Minister a staggering six billion seedlings were planted during the year, bringing the total number planted over the last five years to 25 billion.

 

DAMP DENIMS

Posted on by Tizita S.

Residents of communal houses around the Weji area hang their clothes on the fences outside. Textile manufacturing accounts for 87pc of Ethiopia’s products from industrial parks. Expulsion from the African Growth & Opportunity Act (AGOA) due to the war in the North resulted in Ethiopia being expelled from the preferential trade act. Most companies choosing to rent sheds within the industrial parks do so out of a desire to access the duty-free privileges provided for African countries. Ethiopia’s expulsion has resulted in a 24pc decline in the exports from the industrial parks this year. The removal of duty-free access  for more than one item of clothing per person has also led to to soaring costs of clothing in the country.

PRICY PLEASURES

Posted on by Tizita S.

Vendors put traditional beauty products from the Somali Regional State for sale around Mexico area. In November of last year, the Ministry of Finance banned imported goods under 38 categories, including cosmetics, packed foods, and furniture, from accessing letters of credit. The move resulted in the tripling of costs for cosmetic items like lipstick and nail polish. As Ethiopia ran a 14 billion dollar merchandise trade deficit last year due to import bills hiking by 26pc , a tight clampdown on foreign currency access has become its modus operandi. The Finance Minister, Ahmed Shide, recently indicated that budget ceilings and austerity measures are on the horizon for the next fiscal year.

Climate Change Conference Stipulates Resillience

Posted on by Tizita S.

A conference focused on agro-innovation to improve the livelihoods of smallholder farmers in the face of a changing climate was held last week.

The discussion focussed on integrating digital agricultural data with climate information services to give out better forecasts amidst a climate crisis. The project has provided support to 240,032 individuals, of which 35pc are women.

According to Dawit Solomon (PhD), the program leader for the AICCRA project in East and Southern Africa,  AICCRA’s quality of products, tools, and services exceeded the 75pc target, demonstrating its commitment to climate-smart agriculture.

The event was held at the Radisson Blu Hotel, hosted by the Ministry of Agriculture, in partnership with the Agricultural Transformation Institute, International Livestock Research Institute, and AICCRA-Ethiopia.

Abraham Endrias, director general of Green Agro Solution Plc, said much work needed to be done as only 107,000 farmers have access to digital agro solutions out of the 16 million.

Ministry Endeavours to Privatise Sugar Enterprises

Posted on by Tizita S.

In an effort to privatise the eight sugar enterprises, interested bidders were invited to submit proposals By the Ministry of Finance and Ethiopian Investment Holdings. The enterprises up for grabs which were hitherto managed by the Holding are Omo Kuraz 1, 2, 3, 5, Kesem, Arjo Dedesa, Tanabeles, and Tendaho.

Officials believe issuing a Request for Proposal (RFP) will demonstrate the government’s commitment to a competitive and liberalised market structure. The RFP comprehends bid submission procedures, detailed information about the manner of assessments, the scope of privatisation, and evaluation criteria.

In August 2022, the Ministry attempted to transfer state-owned enterprises to private entities, with over 20 companies expressing their interest in bidding where interested parties must sign non-disclosure agreements and pay a participation fee to participate in the bid.