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Month: June 2024

GLITS, GAINS, AND PAINS!

Posted on by Kirabon

Addis Abeba’s boulevard – Africa Avenue (Bole Road) and surrounding districts – are undergoing a facelift frenzy, driven by ambitious urban renewal projects targeting the capital’s transformation into a modern “smart city”. Recent orders from Federal Housing Corporation (FHC) executives and city officials mandate extensive renovations for residential and commercial properties, igniting mixed reactions among residents and business owners alike. For residents of Africare Bole Apartments and other FHC-managed units, the imposition of renovation costs has stirred financial concerns, particularly among those reliant on fixed incomes.

While officials argue that these upgrades are necessary to maintain property standards and conformity with broader development goals, many long-term tenants face the daunting prospect of affordability during worrisome times of rising living costs. Businesses along Africa Avenue, such as Tropical and Friendship malls, are also wrestling with unforeseen expenses to meet new lighting and advertisement standards. The city administration’s push for standardised aesthetics extends to advertising, where traditional banners give way to modern light boxes and LED displays. The shift aspires to enhance nighttime visibility and commercial appeal along the city’s corridors, though it has left many small business owners uncertain and financially burdened.

Amidst the upheaval, residents and businesses voice concerns over these regulatory changes’ abruptness and lack of clarity. While proponents argue for the city’s beautification and economic revitalisation, critics point to the disconnect between regulatory demands and practical realities. Many residents are keen to see balancing economic growth with respect for heritage and community input in realising the authorities’ vision for a modern, cohesive urban landscape that reflects Addis Abeba’s rich diversity and historical importance.

Autonomy in Action: Will Mamo Mihretu Redefine the Central Bank?

Posted on by Kirabon

In a spirited bid for autonomy, the National Bank of Ethiopia (NBE), under its youngest Governor yet, Mamo Mihretu, aspires to redefine its relationship with the government, the public, international partners, and the industry it regulates. The liberal notion of an autonomous central bank departs from its historically dependent role on the executive branch, signalling a potential era of increased independence and accountability. If only that is not too idealistic of a dream.

Two weeks ago, a bill aimed at overhauling the central bank’s operations was presented to Parliament. The draft proclamation appears to want to shift the NBE’s lending priorities towards price stability targets rather than the government’s fiscal needs. It also strips the Finance Ministry of its privilege to issue import permits through the Franco Valuta arrangement. The bill outlines new pathways for international cooperation and mandates stringent compliance measures to eliminate potential conflicts of interest within its staff. These ambitious reforms require substantial political commitment from Prime Minister Abiy Ahmed’s (PhD) administration and a series of fortunate shifts across multiple fronts.

Ethiopia’s Constitution does not explicitly state that the Central Bank’s Governor reports directly to the Prime Minister, nor does the Governor address Parliament. However, in practice, the Central Bank operates under the oversight of the executive branch, including the Prime Minister’s Office. The constitution’s authors designed this arrangement to ensure the central bank’s monetary policies comply with the government’s broader economic strategies. It primarily outlines the NBE’s responsibilities and powers in managing the country’s monetary policy, issuing currency, and supervising the financial sector.

Historically, the details have been more intricate, often dictated by the ideological leanings of the ruling political order.

Under the Revolutionary Democrats, the National Bank functioned more as a branch of the administration than an independent central bank. During Teklewold Atnafu’s tenure, the longest-serving governor in the institution’s history, the NBE’s monetary policy objectives were closely aligned with the government’s fiscal ambitions. When the Finance Minister required funds for projects, the Governor complied without question, contrary to the principles of autonomous central banking, which prioritise price stability, controlling inflation, and stimulating economic growth to generate sufficient jobs and keep unemployment in check.

Governor Mamo, who assumed office less than a year ago, appears to be changing this dynamic. He reactivated the monetary, financial stability, and macroeconomic committees at the Central Bank, which had been dormant for nearly two decades. His insistence that members of these committees would have no stakes in the institutions they oversee or in any agency involved with the committees to eliminate conflicts of interest and restore public trust in the NBE. He also pushes for further demonstrations of the Bank’s independence from executive interests.

The Governor’s push for autonomy represents a noteworthy shift in Ethiopia’s economic landscape. According to the bill passed by the Council of Ministers, finance oversight committees will no longer include members from the Finance Ministry, marking a formidable stride in monetary policy oversight. However, Mamo’s success will depend on his determination to pursue these ideas persistently and not succumb to small gains as his aides appear to be doing.

Recently, the Central Bank prematurely declared victory over inflation, a move that should raise concerns.

Upon taking office, Governor Mamo set an inflation target, aiming to reduce it to 20pc within a year. Granted, the Ethiopian Statistical Service reports a year-on-year (YoY) general inflation rate of 23.3pc for May 2024, down from 30.8pc in May 2023, reflecting a broader easing in inflationary pressures. The month-on-month (MoM) general inflation rate was 0.5pc in May, slightly down from 0.6pc the same period last year. Non-food items saw a 20pc inflation rate in May 2024, with a month-on-month increase driven primarily by housing, water, electricity, gas, and other fuels.

The 12-month moving average figures provide a broader perspective on inflation trends, smoothing out short-term fluctuations. Based on this measure, the overall inflation rate rose by 27.4pc in May 2024 compared to the previous year, demonstrating persistent inflationary pressures despite the reduction in the annual rate. The CPI Inflation Rate, reflecting the percentage change in the CPI over the previous year, shows a declining trend, falling from around 33pc in May last year to about 28pc this year. There is a deceleration in price increases, although prices continue to rise.

However, it is too early to declare triumph, as the battle for price stabilisation is far from over. The Consumer Price Index (CPI) and the CPI Inflation Rate reveal concerning shifts in the cost of living and the inflationary pressures households face. The cost of living, measured by the CPI Index, shows a steady increase from May 2023 to May 2024, uncovering a consistent rise in the general price level. Consumers face progressively higher prices for a broad basket of goods and services over this period.

Analysing changes in key components such as energy, transportation, food, and rent prices reveals distinct impacts on the overall inflationary landscape.

Food prices, a critical expenditure category for most households, showed inflationary pressures, with a year-on-year inflation rate for food and non-alcoholic beverages at 25.5pc in May this year. Staples like bread and cereals saw a 30.9pc increase, vegetables 30.7pc, and meat 27pc. Prices of alcoholic beverages and tobacco rose by 29.5pc, while housing, water, electricity, and other fuels saw a 24.1pc increase. Education costs surged by 33.3pc, indicating inflationary pressures in the non-food sector. Transportation costs, influenced by fuel prices, followed a similar upward trajectory.

Various internal and external factors influence these price dynamics.

Internally, seasonal demand for food and essentials during major holidays such as Easter and Ramadan contributes to periodic price spikes. Political uncertainties affecting business decisions and disruptions due to conflicts in several parts of the country also play a role. Externally, global economic conditions, including fluctuations in international fuel prices and the Russia-Ukraine war, have exacerbated inflationary pressures by affecting import costs and commodity prices.

Persistently high inflation rates, particularly in the food and energy sectors, impact households, especially those with lower fixed incomes who spend a larger proportion of their earnings on essentials. A recent survey in 17 countries established food security issues escalating in Ethiopia, revealing that 23pc of respondents struggle daily to feed themselves and their families, with an additional 17pc struggling weekly. Close to 40pc reported experiencing frequent food shortages.

However, Ethiopia’s food insecurity concerns are comparable to those in countries such as Kenya and Nigeria, which exhibit high fears of political unrest. The survey found that 66pc of Ethiopians fear political unrest could lead to violence, placing Ethiopia among the countries with notable concerns. Kenya and South Africa lead this fear index with 79pc, while other African countries like Nigeria (75pc) and Senegal (74pc) also show high levels of concern.

Despite a notable reduction in the inflation rate over the past year, overall price levels remain high. The gradual decrease in the inflation rate may relieve consumers but sustained high prices demand continued vigilance and responsive economic policies. Tolerating the escalating cost of living and accommodating an inflationary environment due to a widening budget deficit indirectly imposes high taxes on consumers. Of particular concern is how the administration finances its fiscal deficit by borrowing money from the central bank.

The autonomous function of the central bank is crucial because it serves as a check on the government’s spending habits and defence expenditures. Independent and capable central bankers play a critical role in maintaining macroeconomic stability by ensuring that government spending remains in check. The data has established a correlation between high levels of fear over political unrest and severe food insecurity in Ethiopia. Addressing food security could be crucial in alleviating fears of political turmoil. Through wise monetary policies, achieving price stability could improve social and political environments, reducing the fear of political violence and promoting a more secure and peaceful society.

Booming Lights, Burdened Businesses

Posted on by Kirabon

The modern-day social hub, Bole Road, has seen yet another transformation with multiple landmarks demolished— Olympia is no more. A grey hue has taken over, accompanied by commercial buildings which are required to match their glass tilt while apartments owned by the Federal Housing Corporation (FHC) have painted over their iconic dark brown colour.

Africare Bole Apartments (297) comprises 32 residents in two blocks who have been asked to cover the cost of renovation. They said the requirements from FHC included the interior house as well but settled for the outdoors and balcony after negotiation. According to them, contributing 6,000 Br each was beyond their capacity but they had to comply, fearing eviction from the property.

“We can’t afford this,” said one of the residents. “Most of us live on a pension fund.”

There are close to 20,000 residential apartment units managed by the Corporation. The tenants, mostly residing on the premises for over two decades pay nearly 650 Br monthly rent. According to officials, the renovation is a small price to pay for a place rented at a low price point.

Amanuel Tesfaye, communication director, said it is important to be part of the development plan. He defended his Corporation saying that the agreement was reached based on mutual understanding.

“Anyone saying otherwise is discrediting our name,” he said.

While Amanuel believes that the houses need renovation, the corridor development plan that demanded keeping a certain standard came a tad bit too suddenly before allocating the necessary budget.

Addis Abeba is undergoing a transformative phase with the ruling Prosperity Party taking aesthetics as a major reform. A network of gleaming corridors inspired by Prime Minister Abiy Ahmed’s call to connect the beautification projects scattered across the city guise under the banner of “smart city”. He has assigned high-brass officials to oversee each part including Mayor Adanech Abiebe who took the eight-kilometre stretch beginning at the recently inaugurated Adwa Victory Memorial in Piassa.

Moges Tibebu, head of the Ethiopian Roads Authority, is in charge of the 10Km corridor that encompasses an extensive stretch from Arat Kilo, passing through Friendship Park and Abrehot Library and extending across the renovated Mesqel Square to Bole International Airport, bulldozing sideways on Africa Avenue (Bole Road).

To keep up with the appearance of the multi-billion birr project, new standards are implemented.

For the last few months, a group of people from the Building Permit & Construction Authority had been requesting buildings to match the colours using 20 sets of the European RAL standard system. It was shortly followed by mandatory lighting with a set of standards.

While warm white light is mandatory for all, the officials classified the required building lighting into three categories: uplights and downlights, pixels and LED, depending on the number of storeys and the width of the construction area.

Addis Demeke, team leader of the building permit, said the lighting standard helps to keep the area’s businesses uniform and make it marketable at night.

“It’s a win-win for all,” he said.

Consequently, a letter signed by the Head of Addis Abeba Trade Bureau Biniam Mikru surfaced last week requiring businesses and service providers to stay open at least until 9 PM. Officials hope to revive economic activities and work hours in the corridors.

Over 1,100 owners have submitted their design proposals so far, to meet the standards imposed by the City. One of them is Tropical Mall with over 100 shops and boutiques inside. It has to reimage its entire lighting system and include pixel lighting on its 13-storey building.

Deru Reta, the general manager, was caught off guard when officials demanded the change with little notice.

“I’ve never even heard of it,” he told Fortune.

Apart from being worried about the expenses, which he estimates will cost hundreds of millions, he is unsure where to source the necessary materials.

Other buildings, such as Friendship Mall, have faced similar predicaments. Managers are uncertain about how to comply with the demands and the conditions they are subjected to. The sudden imposition of these requirements has left many business owners scrambling to find solutions

“It’s like being told to construct a new building,” he said.

Advertisement is another area where new standards have been set. Authorities now require the use of light boxes, digital screens, and LED displays, removing traditional banners. According to Awel Jemal, an outdoor advertisement expert, proposals and service charges range from 800 Br to 5,000 Br. He said this is necessary to keep up with the urbanisation objective.

Beginning in Bole District, as businesses and residents adapt to these new regulations, the transition to a digitally-driven advertisement is poised for other corridors as well, said Awel.

The standard applies to all new construction projects, introducing a rigorous bureaucratic framework for obtaining permission and commencing work. About 837 businesses have gotten permission while over a thousand have been stripped of their ads for not meeting the standards.

Ayele Tesfaye, owner of Rahel Juice operating on Airport Road for the past four years, finds himself in a perplexing situation. Recently, officials asked him to remove a newly purchased banner featuring dark-coloured text, stating it did not meet the new standards. However, he said no one explained to him what to do next.

“I don’t even know what the standard means,” he said.

Ayele faces uncertainty as he waits without banners until further notice. His apprehension stems from the looming financial burden of potentially expensive upgrades.

“We have already been struggling with customer reductions due to corridor expansion,” he said.

While some struggle with finances, others like commercial banks are wrestling with time and identity. The banks were asked to digitise their outdoor branding with stringent deadlines that have already passed. However, what is more concerning to most is the lack of clarity on changing their building colours.

Demsew Kassa, secretary general of the Bankers’ Association, underscores the industry’s plea for extended timelines and enhanced clarity. He attributes the confusion to a potential disconnect between regulatory expectations and operational realities, particularly concerning international branding standards.

“We’ve requested an extension of time,” Demsew said, signalling a unified effort within the sector to navigate these regulatory shifts without compromising brand identity.

A daunting task is ahead for business owners in the corridor areas with unforeseen costs of compliance. In contrast, business is booming for advertisers. The demand for light boxes and LED displays has risen while digital screens are set to cost around 200,000 Br. Akias Teshome, the general manager of Akias Advertising,  sees the benefits of the transitions. However, he is concerned about the purchasing power of business owners.

The nearly 20 LED importers are also rejoicing. Over the past three months, LEDCON Manufacturing has sold out over 1,000 rolls of LED lights that were previously stocked for two years. The demand surge has also led to a price increase with costs rising to 200 Br a meter.

Abdi Nuredin, general manager, said the warm white variant, particularly popular for its aesthetic appeal, is in high demand. However, he notes challenges stemming from import duties as high as 65pc, predominantly levied on products imported from China.

Companies like Grace Plc. have also seen growth in their operations. Specialising in designing light boxes and neon lights tailored to client specifications, the company has observed a 10pc increase in demand. According to Jafet Worku, general manager, while current operations are lucrative, future uncertainties loom due to potential fluctuations in raw material prices.

As Addis Abeba strives for an extreme makeover, with enhanced aesthetic standards, the LED and lighting industry emerges as a crucial component of this urban evolution.

A potential tariff increase is looming along with the bright lights. Gebeyew Likassa (PhD), head of Addis Abeba Electric Utility, said most of the businesses use their meters that are expected to run round the clock. He said LEDs provide the same brightness as conventional bulbs but consume 90pc less energy, 15 times longer, requiring less maintenance.

“There have been no consequential effects,” he said.

For urban planners, the key lies in communicating the rationale and involving the residents of Addis Abeba in the planning. Anteneh Tesfaye (PhD), architect, urban designer and planner from Addis Abeba University, acknowledges the need for improvements like corridor developments and colour regulations in the city but raises concerns about the implementation process. He believes a successful project should build on the city’s social capital, which requires involving the public.

According to Anteneh, countries such as Greece had made mandatory changes in the buildings 50 years ago to blue and white colours, to represent the culture of the people which was united and one. However, for Addis Abeba, which is a hub of diversity, he said a monotonous standard was not objectively articulated.

“It can’t be intellectually explained,” he said.

He proposes extensive public engagement and well-designed plans that consider aesthetics, environment, and a slower, more thoughtful approach to achieve the city’s desired image.

How a Family Salvages Habesha Cement, Kindles Promise for Shareholders

Posted on by Kirabon

In a stunning comeback, Habesha Cement S.C. has defied a decade-long struggle to post its first profitable year in 15 years, marking a monumental shift in the industrial landscape. Spearheaded by business mogul Getu Gelete and his family, the company’s resurgence comes after years of financial hardship, displaying a surprise turnaround strategy that has set industry pundits’ tongues wagging in awe.

The cement manufacturer netted 1.2 billion Br in profits three years after Getu acquired a 40pc stake from Pretoria Portland Cement Company Ltd (PPC) for 680 million Br, consolidating his family’s hold on the company. His investment and subsequent strategic overhaul have breathed new life into Habesha Cement, which had accumulated losses in billions of Birr over a decade. Now commanding a tenth of the market share where 18 cement plants produced 7.5 million tons last year, Habesha Cement is one of the largest plants alongside the Nigerian investment, Dangote, Derba, Mugar and Messebo.

Getu and his family’s strategy for restoring the company to profitability began paying off sooner than anticipated.

“It had no imbued owners back then,” Getu told Fortune. “We saved it from sinking.”

Getu’s family business portfolio includes Get-As International Plc, where six subsidiaries are incorporated, Dugda Construction, and a landmark property bearing his name on Africa Avenue (Bole Road), Getu Commercial Centre. The family’s investment in Habesha Cement has been instrumental in steering the company back to profitability, a historical landmark since the company’s incorporation in 2008 with a 300 million Br equity raised from 15,000 shareholders, making it one of the largest industrial-scale investments by public share issuance in Ethiopia.

Four years later, the South African state-owned Industrial Development Corporation (IDC) invested nine million dollars for a 22pc stake, while the PPC invested 12 million dollars for a 38pc stake. Manufacturing began in 2017 at its 3.2 billion Br plant in Holeta Town, Oromia Regional State. However, Habesha Cement struggled to yield returns to its frustrated shareholders, who have yet to see dividends for their investments.

Getu pledged that the 16,500 shareholders in the company’s registry would begin receiving dividends in two years, after the company completes its aggressive factory expansion to boost production and profits.

The company’s turnaround this year saw revenues soar by 357pc to 4.85 billion Br, a remarkable increase credited to effective capital utilisation and strategic decisions.

“This is just the tip of the iceberg,” the elated Getu told Fortune.

Despite Habesha Cement’s losses piled up over the years, reaching nearly 5.53 billion Br last year, Abdulmenan Mohammed (PhD), a London-based financial analyst who looked into the company’s financial statement, attributed the company’s rebound to its substantial borrowing of 5.45 billion Br.

“This is quite impressive,” said Abdulmenan

The company’s increased operations have also led to higher selling, distribution, and administration expenses, which rose to 585.46 million Br from 215.57 million Br. However, financing costs dropped to 634.65 million Br from 917.48 million Br, despite its borrowing has not significantly reduced.

Mesfin Abi (Eng), the cement industry’s preeminent expert, founding CEO, and current board director, recalled the company’s initial struggles when it launched operations. Despite producing around half a million tons annually, limited market access undermined profitability.

“The new management did not fit in with the employees,” Mesfin said, referring to PPC’s appointment of new board directors and a new CEO, Ghassan Broummana, a German national with 30 years of experience in the cement industry, in 2019.

The company’s situation worsened when PPC struggled to raise its share, and the plant’s production fell to 30pc of its capacity. Debts soared, the Birr depreciated, and production costs outstripped sales revenues, leading the company to the brink of insolvency. The turning point came when Getu bought PPC out and appointed his son, Mikias, as CEO. He reconstituted the board, installing Adugna Bekele as chairman.

An aggressive restructuring of human capital, renovations of machinery, and substitution of imported coal with domestic products boosted the plant’s productivity.

The company’s total assets surged to 14.1 billion Br in 2023, nearly fivefold from the previous year, driven by increased investments in property, plant, and equipment, as well as better management of current assets. Total equity turned positive, standing at 3.25 billion Br, up from a negative 4.1 billion Br in 2022. This growth was partly fueled by improved production efficiency and cost management, with production volume increasing by 51pc to 511,785tns.

Habesha Cement’s financial resilience is reflected in its cash flow statements. Net cash generated from operating activities was 364.2 million Br in 2023, compared to a negative cash flow of 395.12 million Br in 2022. The expert noted this improvement demonstrated the company’s operational efficiency and better management of working capital requirements. Despite significant property, plant, and equipment investments amounting to 196.19 million Br, the company maintained a robust cash position.

“We wanted to restore shareholders’ confidence,” Mikias told Fortune.

However, he conceded that security concerns around the company’s quarries near Debre Berhan town, 130Km northeast of the capital in Amhara Regional State, power outages, and foreign currency crunch remain the company’s Achilles Heel.

A major financial manoeuvre was converting a substantial portion of a 98 million dollar loan from the Trade & Development Bank (TDB), a regional bank of COMESA countries under the managment of Admasu Tadesse, into Birr after settling 698 million Br. The debt restructuring deal allowed Habesha Cement to repay loans from the Development Bank of Ethiopia (DBE) and Awash Bank over eight years, stabilising its financial position.

“TDB helped us overcome the tough terrain,” Mikias acknowledged.

CEO Mikias praised the dedication of the Habesha Cement team and the diligent oversight of the board of directors, which his cousin chairs.

“Since the new management team took over a year and a half ago, the company has experienced significant growth in its financial position and operational efficiency,” he said.

The Chairman echoed this sentiment, praising the company’s resilience and agility in overcoming business challenges.

Habesha Cement’s external auditors, HST, have recognised the management’s strategic steps in reducing debt and improving operational efficiency, which have enhanced financial stability.

“Our audit opinion is not modified in respect of this matter,” said the auditors, reflecting confidence in the company’s prospects.

Some shareholders, such as Milkway Tesfaye, have sceptical views of the company’s prospects. He acquired 20,000 Br worth of shares a decade ago, lured by a full rebound. Promoters had promised a 122pc profit return when the company was first incorporated. He has been trying to sell his shares for the past three years, without success.

“Since they started making profits, I might reconsider,” he told Fortune.

Abdulmenan echoed this cautious optimism, noting that a large portion of the reported profits came from an 8.7 billion Br revaluation gain on fixed assets rather than operational profit. He observed that Habesha Cement’s total assets increased substantially to 11.72 billion Br from 3.06 billion Br due to this revaluation. However, the company’s current asset-to-liabilities ratio improved from 0.37:1 to 0.71:1; Abdulmenan flagged that Habesha Cement may face difficulties meeting short-term liabilities.

“Habesha needs to raise substantial capital from its shareholders,” said Abdulmenan.

The financial expert warned that Habesha Cement is yet to be out of the woods as its situation remains precarious. To avoid bankruptcy, it must continue generating substantial profits, securing adequate cash flow, or obtaining a substantial infusion of fresh capital. The Commercial Code compels businesses into dissolution if they lose three-quarters of their capital.

Habesha Cement faces a mix of optimism and caution in an industry where demand is estimated to reach 38 million tons. Its impressive financial turnaround is tempered by the uncertainties of sustaining growth amidst ongoing market and operational difficulties. The external auditors stated that accumulated losses caused material uncertainty about the company’s going concern status.

Higher Education Under Budget Squeeze, Infrastructure Woes During Reform Push

Posted on by Kirabon

The federal budget bill, edging towards a monumental trillion Birr, has sparked heated contention as it progresses through legislative channels at the Parliament. In a two-day hearing convened by the Standing Committee for Plan, Budget & Financial Affairs, divisions emerged between the budget authors at the Ministry of Finance and lawmakers and beneficiaries clamouring for critical investments across their constituencies.

Central to the discord were public universities struggling with suspended projects and stringent financial leashes pending a sweeping overhaul of higher education.

Lemi Guta (PhD), president of Adama Science & Technology University, challenged the Ministry’s decision to halt projects, advocating instead for a temporary freeze to prevent the disruption of ongoing construction efforts with contracted firms.

“Our ability to sustain operations is under severe strain,” bemoaned Lemi, whose Institution faces a proposed budget of 750 million Br — an amount he argues falls short of supporting new student enrollments amidst growing resource limitations. “Some of the projects already have contractors.”

He forewarned that a meagre amount (22 Br per day) allotted for student feeding would undermine the education process in the coming year.

Universities face a dilemma as they adapt to the recent reclassification of higher education institutions into four categories. Kotebe University of Education, led by Berhanemesqel Tena (PhD), is a notable example. Operating with a faculty of 150 teachers and an annual acceptance rate of 500 new students, the University struggles with outdated infrastructure and increased operational burdens.

Kotebe University, on the northern outskirts of Addis Abeba, contends with 50 dilapidated classrooms and delays in crucial infrastructure projects. The Institution’s efforts are further complicated by inflation and bureaucratic hurdles, despite a budget allocation of 446 million Br.

“The purchasing power of our funds has diminished,” said Berhanemesqel, referring to the financial strain.

The recent reshuffling has shifted the University’s reporting structure from the Addis Abeba City Administration to the Ministry of Education, deepening existing issues, with delayed payments and rising costs affecting progress on building construction projects.

The federal government’s new policy direction, placing importance on investment in kindergartens over university infrastructure, has further unsettled academic leaders like Berhanemesqel and Lemi. State Minister for Finance Eyob Tekalegn (PhD) recently informed Parliament that the longstanding practice of prioritizing brick-and-mortar university campus construction would no longer be feasible.

The education sector has been allocated 79.8 billion Br for the upcoming fiscal year, making it the fifth-highest funded sector out of 20, with 8.22pc of the budget. The federal government administers 42 of the 83 universities and colleges in the country.

Beyond the academic sector, stakeholders across various domains expressed scepticism about the budget’s adequacy in addressing infrastructure deficiencies nationwide. However, the goals of the universities will need to take a back seat as the Finance Ministry looks to calibrate aspirations for increased domestic revenue, a budget deficit of less than three percent in GDP ratio, and single-digit inflation rates.

Tesfaye Bekele, representing the Gindeberet Association of Elders, a rural community 178Km west of Addis Abeba, drew attention to protracted delays in road construction projects, vital for facilitating economic activities and enhancing governance in remote regions.

“Residents endure considerable hardships,” said Tesfaye.

Students from the 100 schools within the expansive Woreda had to travel several tens of kilometres on foot to attend national examinations. He said residents had been frequenting visits to the Ethiopian Road Administration (ERA) and have petitioned the Prime Minister’s Office, hoping to get some relief to an infrastructure question going back five decades.

“Budget increments need to be accompanied by increased accountability and results,” Tesfaye said.

Tesfaye’s is a voice shared by many nationwide over the discernible impact of inadequate infrastructure on community welfare and economic productivity.

For Teferi Demeke, director of Budget Preparation & Administration, the imperative of macroeconomic stability and fiscal prudence amid global economic uncertainties justifies a tight budget. He defended the Administration strategy, which focused on reducing reliance on external financing. International sources are expected to contribute only 8.5pc of the proposed 971 billion Br budget.

“Diversifying revenue streams and enhancing domestic borrowing is critical to push back inflationary pressures,” said Teferi. “The government is committed to sustainable fiscal policies in the face of mounting global economic challenges.”

According to Eyob Tekalegn (PhD), state minister for Finance, the budget’s strategic imperatives are broadening the tax base and improving revenue collection efficiency. He dismissed expectations for additional budgetary allocations, attributing the proposed 170 billion Br expansion to current fiscal pressures demanding caution and budgetary restraints.

“Transitioning away from a dependency mindset towards promoting self-reliance is important,” the State Minister said.

He disclosed a shift in his administration’s policy of encouraging economic independence and equitable development across all regional states.

“This has been a dangerous dichotomy,” he said. “Every Ethiopian’s fate is singular.”

He disclosed a pending reform to the safety net program as part of a high-level political, ideological shift that removes the “temperament of looking at handouts.”

“Helping people to help themselves should be the goal,” Eyob told Parliament.

The state minister stressed that the exhaustive collection of taxes through a comprehensive reform of the tax authority, amendments to tax laws, and new taxes would take precedence in the coming year. He expressed the high likelihood of a successful debt restructuring through the G-20 Common in the next few months as creditors also pushed back the deadline for an agreement a few months ahead.

“A meaningful debt restructure is imminent,” Eyob said.

Nevertheless, demands persist in aligning budget allocations with developmental priorities across Ethiopia’s diverse regions.

Eshetu G. Mariam (MP-PP) stated disparities in infrastructure development, particularly in mineral-rich areas such as Gambella and Benishangul-Gumuz regional states, where inadequate road networks hinder economic potential and regulatory enforcement.

“Improving infrastructure access is crucial to unlocking economic opportunities and enhancing governance,” said Eshetu, advocating for targeted investments to stimulate regional growth and combat illicit activities, including illegal mining operations. “Even legal enforcement becomes impossible without proper roads.”

He referred to a 90Km stretch of road in Bero Woreda in South Western Regional State that has been dragging for the past decade, limiting the productivity of the rich gold mines.

“These are sectors which have profound national implications,” he told Fortune.

The federal government’s upcoming fiscal year budget proposal reveals a shift in strategy toward prioritising the completion of existing infrastructure projects over new initiatives. Allocating 283 billion Br to capital expenditures marks a substantial 39pc increase from the previous year. The uptick, however, comes against a backdrop of declining capital expenditures as a percentage of GDP over the past five years.

Federal institutions, from the Ministry of Foreign Affairs to the recently established Ethiopian Forestry Development, have vigorously advocated for increased budgetary allocations, each articulating their specific aspirations and operational costs.

However, ongoing negotiations on debt restructuring and comprehensive tax reforms to bolster domestic revenue streams are critical to the fiscal roadmap. Federal officials expressed confidence in securing favourable terms through discussions with external creditors under the G-20 Common Framework, viewing these negotiations as crucial to easing Ethiopia’s debt burden.

Yehualeshet Agez, head of Resource Management at the Ministry of Justice, emphasised the necessity of reforming feeding programs within penal institutions to preempt potential human rights concerns. He commended the Ministry of Finance for its support in providing foreign currency during international litigations, while recalling the need for additional resources to enhance security and supervision within the country’s prisons.

“This is an area where digitization will have profound implications,” said Yehualeshet, pointing to the transformative potential of technological advancements in prison management and oversight.

Fuel Supply Clogs Leaves Gas Pumps Dry in Addis

Posted on by Kirabon

In what is becoming a frequent feature of Addis Abeba’s gas stations, long queues were ubiquitous last week due to increased supply towards regional states and a slowdown of imports from Djibouti. Benzene shortages were particularly prevalent at the 225 gas stations in the capital, where many customers were being returned as they drove up for a refill.

The Petroleum & Energy Authority(PEA), which distributes fuel to the country’s 1,590 fuel stations, pumped up its supply to regional states following increased requests for agricultural activities in the past few weeks.

Getachew Amogne, the Authority’s distribution head, says the supply shortage was caused by increased demand for benzene for tractors and water pumps at irrigation projects. He says the amount that comes to the capital has decreased by up to 200,000 litres a day following the spike in the uptake of regions.

“Demand has skyrocketed over the past few weeks,” Getachew told Fortune.

The official also believes that hoarding by some fuel retailers looking to profit from the periodical uptake in fuel prices that occurs when subsidies are removed exacerbated the shortage. However, Getachew acknowledged that Addis Abeba has received a few ten thousand litres below its daily demand of 1.5 million in the past few months due to several issues.

Some officials point to the decreased operational functionality of Djibouti’s Doraleh Port as one of the main reasons for the supply shock.

Esmelalem Mehretu, CEO of the Ethiopian Petroleum Supply Enterprise(EPSE), says loading up on fuel at Djibouti has become a long and tedious process for trucks headed to Ethiopia over the past six months. He indicates that drivers wait for hours because filling up a single truck now takes three times as long, unlike 20 minutes a few months ago. Esmelalem says port operators dialled down the power of nozzles as part of fire safety precautions.

“There are several issues at Djibouti,” the CEO told Fortune.

Esmelalem says the 200 trucks filled in a single day are significantly below the amount needed to supply Ethiopia’s daily demand. Nonetheless, EPSE spent around 3.89 billion dollars last year to import 2.4 million tons of fuel from the terminals owned by Horizon Djibouti Terminals Ltd.

The terminal is a wholly owned subsidiary of the Emirates National Oil Company(ENOC), which operates out of two berths capable of accommodating 31 fuel tanks with 12 pumps, a 2000-ton-per-hour flow rate, and a storage capacity of nearly 400,000 cubic meters. A fire erupted five months ago, damaging the flow rate and plummeting daily diesel shipments to Ethiopia by three million litres from 10.

While EPSE negotiated to maintain supplies at around eight million, subsequent technical failures, a flood and time off for a holiday have led to frequent disruptions in the supply directed to Ethiopia over the past year.

The Enterprise relies on a series of depots located along Sululta Town, Sheger City, to ameliorate the impacts of short-term supply shocks on the nearly one million vehicles in the capital.

However, drivers dont quite feel that the shortages have been addressed. Zerihun Tesfa was quite timid in conducting his daily affairs last week to save himself from several hours-long queues at one of the gas stations.

“It is becoming too frequent,” he told Fortune.

Girma Assefa, who manages a gas station on Debrezeit Road, concurs with the driver’s observations. He has observed sales increase nearly fourfold, resulting in an empty inventory by midweek.

Dealers point to the redirection of supply to regional states as the main culprit behind the shock.

Ephrem Tesfaye, a Board Member of the Ethiopian Petroleum Dealers Association(EPDA), says illegality and poor distribution tactics have compounded the issues arising out of Djibouti. As a dealer for NOC, he has been receiving two-thirds of the demand for 1.5 million litres monthly.

“Someone is siphoning it off,” Ephrem told Fortune.

While fuel reform, including the digitation of sales and removal of subsidies, has been one of the Federal government’s priorities over the past two years, problems in supply and distribution have remained unresolved in the capital.

Veterans of the energy sector point to the lack of adequately mapped-out shock response strategies as the primary cause for the shortages.

Serkalem Gebrekirstos(PhD), former CEO of Dalol Oil, says a pervasive lack of forward-thinking and poor operational efficiency has long characterized the fuel distribution system in Ethiopia. He underscores the need for foresight from fuel authorities to ensure the regular continuation of daily affairs unless a major problem occurs.

“Fuel management is too sensitive an issue to remain unaddressed by long-term planning,” Serkalem told Fortune.

The current representative of Habitable Energy Solutions Africa recommends diversifying import routes, frequently updating emergency response strategies, and increasing the backup inventory to better manage future supply shocks. Serkalem recalls imports of benzene coming from Sudan until a few years ago, which he thinks could be reconsidered as an option hereafter.

“Sitting idle until the next supply disruption is not an option,” the expert says.

Taxing Pains Afflict Local Pharma Industry

Posted on by Kirabon

Domestic pharmaceutical manufacturers are scrambling for exemptions from property taxes as factories in the capital are threatened with having their water supply cut off for failing to make payments. While the property tax proclamation has yet to be ratified, the Addis Abeba City administration’s amendment to the Wall & Roof tax has resulted in significant challenges for the 14 plants in the capital.

Liquidity issues for operational costs, foreign currency shortages, and poor industry linkages have dragged the sector’s productivity down, while the new taxes have created a new layer of complexity.

Daniel Waqtola(PhD), President of the Ethiopian Pharmaceutical and Supply Association(EPSA), penned a series of letters to the Ministers of Health and Industry over the past few months pleading for an exemption from the property tax. He says the imposition of additional taxes on a vital industry capable of significantly contributing to the national economy is contrary to the import substitution strategy.

“The industry is barely surviving as it is,” Daniel told Fortune.

Daniel points out that the large space necessary for pharmaceutical manufacturing translates to higher imposition of property taxes, compounding the fledgling industry’s troubles. He says the legal framework should support the industry, which is just starting to blossom.

“Foreign investors won’t come in under these conditions,” Daniel says.

The domestic pharmaceutical industry contributes around 8pc to Ethiopia’s annual medical consumption. At the same time, it supplies only 13pc of the 800 medicines purchased by the state-owned Ethiopian Pharmaceutical Supplies Services(EPSS).

The Ministry of Industry, which oversees over 270 manufacturers, has been calling for an exemption from property taxes for all local manufacturers.

Tirist Bimerew, Head of the incentive desk at the Ministry,  says the need to treat manufacturers separately from other sectors is self-evident. She pointed out the contradiction in imposing new taxes on industry while advocating for import substitution.

“It will impact industrial productivity,” Tirist told Fortune.

However, local manufacturing has been struggling for quite some time. A United Nations Development Program (UNDP) report revealed that 450 factors ceased operations in 2022. The manufacturing sector’s share has dipped by 1.5pc to around 4 over the past two years.

The Health Ministry acquired the services of the American Consulting firm Mckinsey & Company last year to identify some of the policy issues that could help realize its import substitution goals.

Mebratu Massebo, the senior advisor at the Minstry, says they can only advocate for tax exemptions and different policy tools. He indicated that several policy options are being considered to help the manufacturers.

“There is nothing we can do about the tax issues, though,” Mebratu told Fortune.

An official from the Finance Ministry who spoke to Fortune on conditions of anonymity says manufacturing will not exempted from property taxes as there is no international experience to justify it. He pointed out the unlikelihood of any exemptions happening as the draft proclamation has already reached parliament.

“There is no such thing as a manufacturer’s exemption,” the official says

The Federal government’s latest budget proposal places property taxes as an important pillar in boosting tax revenue by 23pc to 502 billion Br in the coming year’s domestic revenue target.

Asmamam Mulgeta, head of finance & property tax project office at the capital’s finance bureau, says the rates from last year’s amendments to the wall & roof tax will be revised after the property tax proclamtion gets ratified.

The Addis Abeba Revenues Bureau, which collected around 9.1 billion Br from the wall and roof tax in the first nine months of the current fiscal year, has given factories a two week deadline to meet their Wall & Roof tax obligations. For those who fail to make payment, a five percent penalty and suspension of water and electricity services are on the cards.

Heyru Hassen, the Bureau’s tax assessment leader, says a long list of administrative measures is necessary to ensure compliance with tax laws. He believes the novelty of the tax is the main source of confusion for the public.

“It is an unreasonable fear,” Heyru told Fortune.

The offical explains that several factors are considered when levying the property tax, including construction material, annual rent value and location. He believes that taxes will help increase infrastructure development in the capital.

However, the possibility of renewed infrastructure has not appeased the local manufacturers.

The 13-year-old Jalphar Pharmaceuticals PLC, which operates out of a 3,000 sqm plant in Bole District, is one of the factories that received a warning letter from the revenue bureau.

Kedir Shefir, the company’s country manager, says the expensive construction materials used for pharmaceutical plants require special treatment from tax authorities. He fears that the added property tax costs will be transferred to the consumer without some policy intervention.

“An exemption or holiday is crucial,” Kedir told Fortune.

The manager says foreign currency has become a significant barrier to production, with the plant operating at a fifth of its full capacity. Kedir says they have stopped manufacturing one of its products to utilize the available foreign currency effectively.

“The tax needs thorough reconsideration,” he says.

Experts like Fasika Mekete believe imposing taxes on the budding industry will diminish its long-term productivity. The former advisor at the Health Ministry says little has been done so far to incentivise local production, which is evident in its less than 10pc contribution to the supply.

“The manufacturers need support, not taxes,” he told Fortune.

Fasika expects the already high cost of medicines in the country to be exacerbated without adequate local production in the long run.

Confronting the Global Neglect of High Blood Pressure

Posted on by Kirabon

Some of the world’s big challenges get a lot of attention. Climate change, war and immigration are constantly in the news and receive large funding from states and private philanthropies. Other problems like tuberculosis and nutrition receive less airtime and awareness, but count among major global priorities, with funding allocated.

Even the aptly named Neglected Tropical Diseases like rabies, river blindness and leprosy, which kill 200,000 people each year in poorer countries, have their programs and attention from the World Health Organization (WHO).

But there is a challenge about which we hear little to nothing. It affects more than a billion people and could be addressed very efficiently. We could reasonably call it the Neglected Enormous Disease. The world has made large inroads in tackling infectious diseases. Two centuries ago, they routinely caused almost half of all deaths, but today, they kill less than 15pc. Instead, half of all deaths are caused by the two biggest killers, cardiovascular disease and cancer.

Cancer causes about 18pc of all deaths, but it is hard and costly to tackle with only modest success rates, which is why most treatment happens in rich countries. The biggest killer of all, which is technically called cardiovascular disease but mainly consists of heart attacks and strokes, kills more than 18 million people each year, making up a third of all global deaths. A big part of the problem is unhealthy diets, physical inactivity, tobacco and alcohol use, which causes obesity and high blood pressure.

While doctors will tell patients to stop smoking, cut down on alcohol and salt, exercise more, and eat fewer calories but more fruit and vegetables, this advice is fairly difficult to follow. Tobacco and alcohol regulation can make this easier, along with reducing salt levels in ready-made meals. But, focusing on high blood pressure is critical to turning around this Neglected Enormous Disease. Incredibly, the indicator of high blood pressure is the single most considerable global death risk, leading to almost 11 million deaths annually, causing 19pc of all fatalities in the world.

As the world’s population ages, more people are affected. The number of people living with blood pressure doubled in the past 30 years — to about 1.3 billion people. Because there are no apparent symptoms, almost half do not even know they have it, and four out of five people are not adequately treated.

This combination makes high blood pressure both enormously impactful and surprisingly neglected.

The good news is that treating high blood pressure is incredibly cheap and effective. One or more off-patent pills cost next to nothing. This is done fairly well in rich countries, but we should be doing this worldwide.

Community screenings for high blood pressure cost as little as one dollar per person, and the prescription of blood pressure medications often costs only three to 11 dollars annually. Peer-reviewed research shows that controlling high blood pressure in the poorer half of the world would cost about 3.5 billion dollars annually. But it would save almost a million lives each year. Put into economic terms, each dollar spent would achieve 16 dollars in returns to society, making it one of the world’s most efficient policies.

Despite becoming a bigger killer than infectious diseases — even in the developing world — chronic diseases like cardiovascular disease receive very little funding. External funding accounts for almost 30pc of health spending in low-income countries, but only five percent of all this funding goes toward chronic diseases. In Nigeria, where heart disease is responsible for one in 10 deaths, the Ministry of Health’s Non-communicable Disease Division has launched a new program to control high blood pressure.

This is an excellent start — but it is vital that donors step up their support for programs that increase access to affordable, comprehensive high-quality prevention and treatment services for high blood pressure not only across Africa but in all developing nations. High blood pressure is the world’s leading global killer risk, yet it receives little attention and even less funding. For 3.5 billion dollars annually, we can implement one of the best solutions for the world, saving millions of lives. We only need to know.

 

Whip Up Guac While Rethinking Household Chores

Posted on by Kirabon

An early arrival home with perfectly ripe avocados sparked a culinary whim. It had been a while since I ventured into the kitchen. While no professional, I gleaned some skills during a West African sojourn four years ago. My repertoire boasts basic omelettes, pasta dishes, and, most notably, a mean Shiro – a feat that always impressed my expat colleagues whenever I mustered the courage to cook it.

This time, inspired by the avocados, I decided to make guacamole, a simple but globally adored Mexican dip. A quick YouTube refresher felt prudent, as cooking can be deceptive. Even seemingly effortless dishes, in the hands of a pro, can morph into burnt offerings, unevenly cooked messes, or flavourless flops.

The two-minute video laid out the essentials: avocado, lime, cilantro, white onions, tomatoes, green pepper, and oregano. Improvisation became necessary – lemon for lime, red onions instead of white, green pepper subbing for cayenne, and nixing the cilantro and oregano altogether.

Further exploration on YouTube yielded conflicting advice. An American-accented chef preached seed removal from the pepper, while a Hispanic counterpart strongly advised against it. Deferring to the latter, given guacamole’s roots, felt like the more culturally sensitive choice.

With clear steps, a sense of calm descended. Prep flew by in under 10 minutes, and following a plan made a world of difference. Simple details, like tempering the onion’s bite in warm water, enhanced the dish. Dicing the pepper and tomatoes unlocked their flavours, while the avocados achieved the perfect chunky-smooth balance.

The guacamole was a delightful success and elevated our family dinner. Although there was a deviation from the traditional tortilla, we enjoyed it with regular bread. It was a culinary adventure and a refreshing escape from routine for me.

My guacamole adventure was a testament to the joys of hands-on activity. It served as a springboard for a broader reflection and reminded me of a friend in Germany who, despite owning a dishwasher, occasionally hand-washed dishes. His reasoning was a yearning for hands-on activity. In our automated world, dependence on machines can sever our connection to manual tasks. Cooking, cleaning, gardening – any hands-on activity – offers a delightful path to unwind and feel productive.

We usually delegate tasks due to busy schedules. Working parents rely on childcare and domestic help. Many juggle demanding jobs with essential household duties.

The COVID-19 lockdowns blurred the lines between work and family life for parents working from home. While our country’s restrictions were lax, other parts of the world faced stricter measures. Crying children became unwelcome background noise during business calls. Remote work, while offering some parents more time with their children by eliminating commutes and childcare needs, also blurred the line between work and home life.

I recall a young mother, stretched thin, managing chores while caring for an infant. Even with her husband’s help, the workload felt overwhelming, leading to sleep deprivation and recurring health issues. The pressure is twofold for single parents, particularly women, who face even steeper hurdles. Juggling work and family responsibilities solo is a colossal feat.

The gendered division of labour has deep roots, harkening back to the days of hunter-gatherers. However, these days, despite contributing financially, women usually shoulder the burden of housework, leading to work-family conflict. The disparities are most pronounced in couples with children and persist even in developed nations.

Studies reveal that globally, women with children dedicate significantly more time to housework than men, even in developed nations. According to the European Institute for Gender Equality, a staggering 91pc of women with children spend at least an hour daily on housework, compared to a mere 30pc of men. Employed women dedicate up to three hours daily to housework, while employed men dedicate just over an hour.

Cultural norms can also make women hesitant to accept help from their partners. Understanding these realities and contributing to household chores is valuable. It brings appreciation for the contributions of others and the sacrifices made by those who handle these tasks regularly. Sharing the burden cultivates a deeper sense of empathy and cooperation in our daily lives.

What started as a simple guacamole-making session turned into a thoughtful exploration of the value of manual tasks in a busy, modern life. While I revel in the occasional culinary feat, the reality is that household chores are a necessary part of life. Sharing this responsibility, challenging outdated gender norms, and recognising the invisible labour that goes into maintaining a home are the true recipes for a more equitable and harmonious household.

From the Washington Consensus to the Berlin Declaration

Posted on by Kirabon

Paradigm shifts in mainstream economic thinking usually accompany crises demanding new answers, as occurred after stagflation – low growth and high inflation – gripped advanced economies in the 1970s. And it may be happening again, as liberal democracies confronted a wave of popular distrust in their ability to serve their citizens and address the multiple crises – ranging from climate change to unbearable inequalities and major global conflicts – that threaten our future.

The consequences can now be seen in the United States (US), where former President Donald Trump has a good chance of winning the presidential election in November. Similarly, a far-right government could take power in France after the coming snap election. To prevent dangerous populist policies that exploit voters’ anger, and to avert major damage to humanity and the planet, we must urgently address the root causes of people’s resentment.

With this imperative in mind, many leading economists and practitioners convened in Berlin at the end of May for a summit organised by the Forum New Economy. The “Winning Back the People” summit led to something resembling a new understanding that may replace the market-liberal “Washington Consensus”, which for four decades emphasised the primacy of free trade and capital flows, deregulation, privatisation, and other pro-market shibboleths.

The Berlin Declaration published at the end of the gathering has since been signed by dozens of leading scholars, including Nobel laureate Angus Deaton, Mariana Mazzucato, and Olivier Blanchard, as well as by Thomas Piketty, Isabella Weber, Branko Milanovic and many others.

The Washington Consensus has been wobbly for some time, challenged by abundant research documenting rising income and wealth inequality and its causes, as well as reassessments of the role of industrial policy and strategies to combat climate change. Recent crises, not to mention the danger of losing the fight for liberal democracy itself, have catalysed an effort to translate all this research into a new common framework of policies to win back citizens.

The Berlin Declaration highlights widespread evidence that people’s distrust is to a large extent driven by the shared experience of a real or perceived loss of control over one’s own livelihood and the trajectory of societal changes. This sense of powerlessness has been triggered by shocks stemming from globalization and technological shifts, amplified by climate change, artificial intelligence, the recent inflation shock, and austerity.

This diagnosis logically leads to an equally clear conclusion. To win back people’s trust requires policies that restore confidence in their – and their governments’ – ability to respond effectively to the real problems they face. This means focusing policies on the creation of shared prosperity and good jobs, including policies that proactively address imminent regional disruptions by supporting new industries and directing innovation toward wealth creation for the many

There is equally strong support for designing a healthier form of globalisation, for coordinating climate policies, and for allowing national control over crucial strategic interests. Underlying these priorities is broad agreement that income and wealth inequalities must be narrowed.

As part of a new consensus, climate policies will need to combine reasonable carbon pricing with strong positive incentives and ambitious infrastructure investment. There is widespread acceptance of the need for developing countries to obtain the financial and technological resources they need to embark on the climate transition. In sum, there is a new shared common sense that a new balance between markets and collective action needs to be established.

Agreeing on all of this would probably not have been possible five years ago. The large number of signatories and the diversity of perspectives they represent reflect how much the discussion has changed with the accumulation of more empirical evidence.

The signatories of the Berlin Declaration do not pretend to have all the answers; far from it. Rather, the Declaration’s purpose is to offer a statement of principles that differ from the previous orthodoxy and to create a mandate to refine political concepts for practice. How to get industrial policy right must be defined in a national context, as well as in a cooperative international effort; the same is true of how governments can best incentivise climate-friendly behaviour. How to re-frame globalisation or most effectively reduce economic inequality also remains an open question.

Nevertheless, achieving a consensus on the principles that should guide policymakers is hugely important. Recognising that markets on their own will neither stop climate change nor lead to a less unequal distribution of wealth is only one step toward devising optimal strategies that can effectively address the real challenges that confront us. A lot of progress has already been made on this front.

We now face a choice between a protectionist populist backlash, with all the conflict that this implies, and a new suite of policies responsive to people’s concerns. To preempt the populists, we need a new political consensus that focuses on the causes of citizens’ distrust, rather than on the symptoms. A concerted effort to put citizens and their governments back in the driver’s seat and promote well-being for the many is needed to restore trust in our societies’ ability to overcome crises and secure a better future.

To win back the people requires nothing more – and nothing less – than an agenda for the people.

Ending the Protectionist Scourge Would Benefit All

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The World Trade Organization (WTO) is among the greatest success stories of the post-World War II era. By establishing rules based on principles like nondiscrimination among trading partners and equal treatment of foreign and domestic goods, the WTO enabled international trade to flourish, with far-reaching benefits for economic growth and poverty reduction. In this sense, the WTO is like oxygen: essential, but often taken for granted.

Before 1800, international trade accounted for a very small share of global economic activity because transport and communications costs were high, and most countries embraced mercantilist policies. But over the 19th Century, those costs fell. Trade barriers were lowered – first in the United Kingdom (UK), and then across Europe – and an era of extraordinary economic growth began in today’s advanced economies.

This period was interrupted by two world wars and the Great Depression – events that, together with the protectionist policies they fueled, caused trade growth and world output to decline sharply. But after WWII, policymakers on both sides of the Atlantic devised plans for a new international economic architecture, shaped significantly by the insights of John Maynard Keynes. The WTO’s predecessor, the General Agreement on Tariffs & Trade (GATT), was established in 1947 to ensure that the rule of law prevailed in international trade.

Over the next half-century, tariffs were lowered, trade flourished, and the advanced economies achieved unprecedented – and sustained – GDP growth. In the 1980s and 1990s, developing countries increasingly attempted to get in on the growth bonanza by abandoning their protectionist policies. By the turn of this century, the world was taking open trade – and the robust growth it supported – for granted.

Today, however, the international trading system is under threat.

The US, which spearheaded the GATT, has abandoned its leadership – severely weakening the WTO, especially its ability to settle trade disputes – in favour of protectionism. This process began under President Donald Trump’s administration, and has continued – and intensified – under US President Jeo Biden. The US now has introduced high tariffs, particularly on Chinese goods, and extensive subsidies for domestic industries such as semiconductors and solar panels.

In response, other economies – from Canada to Turkey to the European Union (EU) – are implementing their tariffs and subsidies (often targeting the semiconductor industry). When everyone pursues protectionist policies, everyone loses: the countermeasures offset any domestic industry advantages while raising consumer prices. Compounding the problem, non-US businesses are now hesitant to invest in boosting their export capacity, for fear that their access to the US market will be restricted.

Though global trade and GDP continue to grow, the rates have slowed. With Trump and Biden pledging to continue down this protectionist path after this year’s presidential election, the global trading system’s prospects appear bleak.

Rather than continue this race to the bottom, the world’s trading powers must address the disagreements fueling the turn to protectionism, beginning with “unfair” Chinese trading practices. The primary grievances the US and other market-oriented economies expressed are that China heavily subsidises its exports and does not adequately respect intellectual property (IP). The key to resolving these issues, and restoring US global trade leadership, will be to ensure a level playing field, including for IP, for private firms in advanced economies and state-supported Chinese enterprises. To that end, trading arrangements under the WTO must be updated, with Keynesian principles – including equal treatment of foreign traders in domestic courts – adapted to a 21st-century context.

Think tanks and academics should get to work clarifying the details of these new arrangements, including how they will be enforced. There might be a need, for example, for a new international agency tasked with ensuring that state-owned and state-supported companies adhere to updated WTO rules. Mechanisms for monitoring and enforcing IP claims, according to internationally agreed standards, will also be needed.

Restoring an open multilateral trading system will not be easy, but the benefits of doing so are difficult to overstate. Smaller countries have the most to gain (relative to GDP), and might even want to take the lead in formulating plans. But, the increased economic growth brought about by a return to free trade would help raise living standards everywhere. It would also enable governments to strengthen social safety nets, thereby protecting those groups that will inevitably be left behind. It would also lower political barriers to financing action on global challenges, such as climate change, which can be overcome only with international cooperation. If the global trading system continues on its current path, however, economic growth will lag behind its potential, reducing governments’ scope for action on social and environmental challenges and undermining international cooperation more broadly. The world would be poorer, more divided, and far more vulnerable to looming existential threats.