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Author: Tizita S.

Ethiopia Throws Open Its Market Gates

Posted on by Tizita S.

In a bold departure from its historical position on foreign investment, the federal government has opened the doors of the trade sectors, including export, import, wholesale, and retail, to foreign nationals. A new directive initiated in March represents a landmark shift from the protectionist policies that have long shielded domestic businesses from international competition.

For decades, successive administrations have been cautious about foreign participation in the domestic economy, especially in critical sectors like trade. An investment proclamation revised four years ago particularly reserved certain trading activities for Ethiopian nationals. Despite these measures, the growth and global integration expected from domestic businesses have not been realised to the anticipated extent.

This, coupled with issues of service quality, efficiency, and legality in protected sectors, prompted a reevaluation of existing policies, according to a directive the federal government issued last week.

The Ethiopian Investment Board, chaired by Prime Minister Abiy Ahmed (PhD), has approved a directive that seeks to rejuvenate the economy by allowing foreign investors into previously restricted areas. The Board comprises Mamo Mihretu, central bank governor; Ahmed Shide, minister of Finance; Fitsum Asfaw (PhD), minister of Planning & Development; Grima Birru, senior macroeconomic advisor to the Prime Minister; and Hana Arayaselassie, head of the Ethiopian Investment Commission.

Commissioner Hanna is finalising how the new investment directive will be enforced. According to Dagato Kumbe, deputy commissioner, licenses and permits from the Commission and the Ministry of Trade & Regional Integration (MoTRI) need to be worked out. However, he disclosed that foreign companies in the country can be eligible for the new modality.

“Outline of the implementation will be announced soon,” he told Fortune.

Aspiring to boost domestic capabilities and integrate them into the global trade value chain, the policy is seen as an effort to increase the competitive terrain, ensuring both qualitative and quantitative growth in these sectors.

Under the new rules, foreign investors can trade key commodities such as raw coffee, khat, oilseeds, pulses, hides and skins, forest products, and livestock. However, they must meet specific prerequisites, such as demonstrating relevant experience, capacity, or market linkage in the sector and fulfilling particular financial thresholds and commitments. According to the draft, foreign investors can export raw coffee if they submit a purchase order contract of 12.5 million dollars or have a three-consecutive-year history of buying 10 million dollars of the beans from Ethiopia. The companies will also be contractually obligated to export 10 million dollars worth of coffee within the year.

Exporters must submit half their foreign currency earnings to the central bank and 10pc to the commercial bank facilitating the trade. Fikadu Digafe, vice governor of the central bank, believes foreign companies will likely be treated the same in terms of foreign currency management.

“Retention procedures will likely continue,” he told Fortune.

The import trade is now open to foreign participation, excluding sensitive commodities like fertiliser and petroleum. Here, the conditions are that foreign entrants substantially contribute to the Ethiopian market, either as manufacturers of the imported product, agents of a manufacturer, or entities committed to importing goods worth at least 10 million dollars annually. The wholesale and retail sectors also welcome foreign investment, focusing on modernising marketing infrastructure and providing streamlined logistics services. Retail trade investments now encourage the establishment of large-scale supermarkets and hypermarkets, aimed at enhancing the retail landscape.

The directive also delineates the roles of various government bodies, such as the Ethiopian Investment Commission and the Ministry of Trade & Regional Integration (MoTRI), in facilitating, regulating, and monitoring the enforcement of these new provisions. These agencies are tasked with ensuring compliance, issuing permits and licenses, and safeguarding against anti-competitive practices.

The authorities claim the directive’s effective date marks a critical moment in Ethiopia’s trade policy, arguing it signals a new era of openness and international cooperation.

“With these changes, Ethiopia aims to position itself as a key player in the global trade arena, encouraging an environment conducive to innovation, competition, and sustainable economic growth,” said the Deputy Commissioner.

The decision has been met with a wave of cautious optimism among local businesses. Coffee, Ethiopia’s primary export commodity, contributed nearly a third of the 3.6 billion dollars in export revenues last year and remains central to this shift. Exporters like Dejene Dadhi, general manager of the Oromia Coffee Farmers Cooperative Union, see potential benefits if foreign investment extends beyond just exporting to involvement at the production level.

“The government may need to adjust foreign currency regulations to incentivise foreign investment,” said Dejene.

While he does not worry about multinational companies dominating the market due to potentially inflated prices, the involvement of foreign firms could expand market access and boost productivity. His Cooperative is a half-million-farmer strong. Local exporters pay farmers above international market rates, according to Dejene, making the profit margin unattractive for larger foreign companies.

“They will demand to own commercial farms,” he said.

The directive is not a one-size-fits-all approach; investment requirements vary across products, with minimum capital requirements set differently for oilseeds (five million dollars), pulses and khat (one million dollars), hides, skin, and poultry (half a million dollars), while no contractual obligations are laid out for livestock.

The swift enforcement of the policy has surprised some, like Edao Abdi, head of the Ethiopian Pulses, Oil Seeds & Spices Processors-Exporters Association. Most agricultural commodities are exported at a loss, with businesses compensating by adding hefty profit margins to their imports.

“Competition will be a healthy roast, driving down import costs and capital flight,” Edao told Fortune.

He sees that trade liberalisation could give Ethiopia more leverage in negotiations to join international organisations like the World Trade Organization (WTO) while gaining favour with multilateral financial organisations like the World Bank.

“A Starbucks or a McDonald’s branch does not seem far off,” he said.

Veteran exporter Sisay Asmare, the previous president of the Association, cautioned that boosting productivity is essential before reaping the full benefits of trade liberalisation.

“We are enough for the current production scale,” he told Fortune.

He stated the need for “adjacent changes,” such as maintaining law and order around farms, cracking down on illegal exports and imports, and improving agricultural incentives, potentially through subsidies or enhanced infrastructure.

“A secure environment is essential for consistent production,” said Sisay, pointing to the crucial role of regulatory and infrastructural support in making liberalisation a success.

His experience includes witnessing failed attempts at liberalisation in the past. According to him, regulatory roadblocks deter foreign investment in areas like cold chain transport and warehousing.

The draft directive’s authors believe that the lacklustre success of prior liberalisation reforms was one reason for the policy shift. Four years ago, a regulation approved by the Council of Ministers removed restrictions on foreign companies in the transport sector while reserving electric import exports, international air transport, and weapons manufacturing for joint investments with the government.

While international organisations like the IMF advocate removing restrictions on investment and express an aversion to the protectionist policy, economic growth stories over the past 100 years have been much more nuanced. In contrast, South Korean economist Ha-Joon Chan (Prof) argued in his paper “Kicking Away the Ladder” that the developed Western world relied on infant industry protection in its formative years despite counterintuitively pushing developing countries to adopt thoroughly liberal orientations. He argued that industrialised nations only adopted free trade policies after development.

However, some believe the policy change also allows domestic businesses to learn from foreign expertise and technology.

Seyoum Chane, research and advocacy manager at the Addis Chamber of Commerce & Sectoral Association, believes that while competition can drive quality, partnership is the key to success. He proffers the possibility of joint ventures that merge local knowledge with international capital and resources.

Others see consumers benefiting from the anticipated influx of foreign companies, which, with their economies of scale, can negotiate better deals with suppliers, potentially leading to lower prices for local shoppers.

“Consumers will benefit, particularly in the retail sector,” said Million Kibret, a business consultant.

He argued that domestic businesses have had nearly five decades to prepare for growing competition.

“The more we open up,” Million said, “the more the world opens to us.”

He envisions a future where foreign investment improves price competitiveness and elevates the quality of exports, particularly agricultural products. According to him, multinational companies might become involved at the beginning of the supply chain, working with farmers to meet international compliance standards. The draft directive extends the opportunities beyond exports, including retail and wholesale trade, opening a new chapter for consumers.

Tihitina Legesse, managing director of Waryt Plc, a successful household furniture brand, sees the shift in policy as an opportunity for growth. She believes a more efficient supply chain with foreign companies can offer domestic businesses better access to foreign currency. However, she believes competition from foreign retailers will push domestic businesses’ creative limits to improve their offerings, potentially leading to a wider variety and higher quality of goods.

“Consumers will have a choice,” she said.

Tihitina urged that regulations be placed to prevent capital flight.

Excise Tax Stamps Rattle Key Industry Players

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A proposed excise tax stamp system draws controversy amongst industry leaders in the alcohol, tobacco, beer brewery, and water bottling sectors. While they are wary of added costs, information leaks, and disruptions to production, officials at the Ministry of Finance see it as a weapon against counterfeiting and a path to higher tax revenue. Last week, they gathered at the Ministry’s headquarters on King George VI St for public discussion.

At the heart of the discourse lie concerns over escalated levies, hidden costs, and the imperative of transparency. Wasihun Abate, a tax policy advisor at the Ministry, stressed the need to implement tracking and tracing mechanisms for the four industries that have been proliferated with high-risk products.

“We must have unequivocal evidence of excise tax compliance,” he said.

Wasihun foresees a security infrastructure as reliable as marks on bank notes to eliminate any possibility of counterfeit stamp manufacturing and streamlined excise tax collection.

“Excise stamps have proven their mettle,” he said.

Tax stamps, tracing their lineage over 350 years across 80 nations, stand as a testament to the enduring struggle against illicit trade. From oversised parchments in Spain to their modern incarnation as adhesive labels reminiscent of postage stamps, their efficacy has varied. While nations like Kenya and Morocco wield them as potent weapons against illicit commerce, others, like Denmark, have bid them adieu in recent times.

However, the three-year-old excise tax decree, targeting luxury items and those detrimental to public health, has faltered in its quest for fiscal buoyancy. Last year, it fell short by two billion Birr to 27.7 billion Br, a reminder of its limitations in boosting the coffers.

According to Tewedaj Mohammed, head of legal affairs at the Ministry, reducing illicit manufacturing, smuggling and counterfeits goes in line with modernising the tax management system.

“Tax revenue is below the plan,” he said.

During the fervent debate, the dissenting voices of industry stalwarts echoed, with practical challenges and apprehensions in their respective sectors.

Yetnayet Beyene, legal director of Dashen Brewery, voiced concerns over the looming spectre of increased costs. Dashen has an installed capacity of around three million hectoliters between its two plants in Gonder and Debre Birhan, in Amhara Regional State. Her apprehensions continue with the uncertainty of reporting requirements in the event of production halts, fearing the unintended revelation of sensitive business information to competitors.

“Competition is fierce in our industry,” she said.

Her sentiments find resonance across the sector, with Mekes Sahilemariam, representing Heineken Brewer Factory, echoing concerns over the potential monopolistic control by a single stamp supplier.

“Multiple players must be involved,” she said, underlining the imperative of seamless integration into the pace of production.

There was a contrasting view from the tobacco industry, besieged by rampant contraband. They greeted the proposed stamps with guarded optimism. Yayehyirad Abate, head of Corporate Affairs at National Tobacco Enterprise, anticipates a welcome reduction in illicit trade, albeit with reservations about the swift implementation timeline. He queries if the cost implications of digital stamps were considered while advocating for a year preparation period.

Meanwhile, the bottled water sector, long at odds with the excise tax, finds itself thrust into further turmoil. Bottled water manufacturers who have objected to the excise tax ever since it was initially levied on them were predictably upset over what they perceive as a rushed impetus to bring about stamps.

Getnet Belay, chairperson for the Water Bottlers Association, was aghast at how stamp requirements were introduced when the initial issue over the legitimacy of the excise tax on water was not satisfactorily resolved.

“It’s all happening too fast,” he said.

He argued that the water bottling industry was already struggling to keep up with skyrocketing costs to be hit with an additional burden on its finances.

“It should be left out for the time being,” he said .

Implementation guides were put forth by the Ministry officials. Mulay Weldu, tax policy director at the Ministry, attempted to quell the concerns by stating that companies would be required to pay for the stamp supplier in Birr and that a non-disclosure agreement would be signed to hide business secrets. Mulay warns products marketed without a stamp will be illegal. He expects a commendable uptick in excise tax contributions to the GDP, aligning with the federal government’s vision of elevating the tax-to-GDP ratio to 18.2pc within four years.

“Change is imperative,” he said.

Officials plan to solicit international bids once the directive receives the nod of approval. With 20 companies expressing keen interest in the preliminary stages, Mulay hints at a rigorous vetting process to ensure competence and integrity.

Winning companies must have data recording and processing capabilities, allowing the products to be marked with unique codes that can verify their authenticity and destination. Products will be stamped after the manufacturing process is completed, and imported items will be tagged at customs inspection sites.

Factories are expected to buy surveillance cameras for remote inspection by authorities, a stamp registry, and an authenticator with the Ministry of Revenues mandated to oversee and regulate the process. New products must be announced 60 days before being added to the production line.

Temesgen Takele, excise tax liability and audit services coordinator at the Ministry, capacity-building programs have been launched, and staff have are being trained.

“We aim for consumer protection apart from tax revenues,” he told Fortune.

Tax law experts such as Yohannes Woldegebriel said the potential to regulate the presence of counterfeit products in the market demands a careful selection process of the supplier company and the technology to encourage compliance, making sure that it will not reveal sensitive business information to outsiders and among competitors.

“A rigorous selection process is important,” he told Fortune.

According to Yohannes, boosting the regulator’s capacity helps instil effective monitoring and enforcement in an institution. He recommends attaining policy objectives at low costs.

Confronted by Early Losses, Ahadu Bank Charges Ahead with Aggressive Growth, Digital Focus

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In a period marked by industry expansion and ambitious regulation in the financial sector, Ahadu Bank, among the industry’s latest entrants, has embarked on a course characterised by transformative potential yet apparent limitations. Despite early financial impediments, the Bank’s leadership says it is positioning Ahadu, headquartered on Africa Avenue (Bole Road), to capitalise on digital adaptation and strategic partnerships to forge a path to profitability and robust service delivery.

Ahadu Bank, which launched operations in June 2022, has rapidly expanded, establishing 75 branches where 667 employees were deployed in its inaugural phase. It began with a strong capital base, boasting 503 million Br in paid-up capital, mobilised from 9,600 shareholders. A proactive approach to growth, as evidenced last year when shareholders voted to increase the paid-up capital to five billion Birr within three years, shows a robust start.

Despite its aggressive expansion, Ahadu Bank faced significant financial strain, reporting substantial losses of 193.68 million Br last year, which comprises about 30pc of its paid-up capital.

The Bank’s President, Sefialem Liben, attributed these losses primarily to the hefty initial costs associated with establishing a foothold in the competitive banking industry. By comparison, its peer, Tsehay Bank, incurred a loss of 162 million Br in the same period.

Ahadu Bank has shown some promising signs despite its overall losses. It earned 29.93 million Br in interest income — a 37.9pc increase — and recorded 92.71 million Br in fees and commissions, along with 19.55 million Br in gains from foreign exchange dealings. However, these revenues were offset by interest expenses of 21.54 million Br and other operational costs.

Abdulmenan Mohammed (PhD), a London-based financial analyst, noted the trend among new banks facing substantial early losses due to the high-cost entry to the industry.

“The period to reach a level of decent returns becomes much longer,” he said, cautioning a rough road ahead for newcomers. “This must have been frustrating.”

According to Abdulmenan, executives will have to make up the accumulated losses in due time for Ahadu Bank to begin distributing dividends to its shareholders.

Despite these financial snags, Ahadu has laid a strong foundation in asset accumulation and customer deposit mobilisation. The Bank’s assets have grown to 3.1 billion Br, and it has mobilised deposits totalling 2.03 billion Br. These efforts have yielded a loan-to-deposit ratio of 45.6pc, which, while half the size of the industry’s average, represents a solid start for a new finance institution.

The Bank’s strategy to overcome its early limitations involves a shift towards digital banking. Sefialem stated the role of technology in Ahadu’s future, noting ongoing projects that he hopes enhance vital operational modules such as efficiency and security. He banked on partnerships with fintech companies and integrations with platforms such as Telebirr, EthSwitch, the Ethiopian Commodity Exchange (ECX), and Documents Authentication & Registration Services.

“These initiatives are central to Ahadu’s strategy to differentiate itself in a crowded market and attract a tech-savvy customer base,” the President told Fortune.

The banking industry has seen a robust expansion in total loans and advances, which grew by 24.3pc to reach 1.8 trillion Br by June 2023. A noteworthy aspect of this growth is the credit distribution across various economic sectors, demonstrating strategic diversification. Sectors such as manufacturing, domestic trade and services, and consumer banking primarily fuel this surge. Manufacturing received the highest proportion of loans, amounting to 23.2pc of the total, followed by domestic trade and services at 20.7pc, and exports at 15.7pc.

The shift towards increased private sector lending is particularly significant, with private sector credits making 55.9pc of the total banking sector credit.

In tandem with the rise in loans, total deposits across the industry also grew by 24.6pc to 2.1 trillion Br during the same period. Increases in savings and time deposits have primarily supported the growth in deposits. Notably, the share of total deposits as a percentage of GDP stood at 24.8pc by June 2023, illustrating a substantial liquidity pool within the banking industry.

However, the authorities are taking measures to steer this liquidity in the desired direction, including the imposition of mandatory purchase of annual bonds from state-owned banks and maintaining a uniform 14pc annual loan growth cap. These measures persist despite the National Bank of Ethiopia’s (NBE) announcements in August aimed at curbing inflation to under 20pc.

However, the cap on loan growth limited revenue opportunities for banks such as Ahadu, according to Sefialem, who nonetheless remains optimistic about the Bank’s ability to navigate these regulatory constraints by employing diversified investment strategies. He disclosed that his team has been looking for short-term loans, guaranteed investments, international banking, and investments in time deposits to compensate for the earnings.

Soaring expenses combined with modest revenues caused Ahadu Bank to make substantial losses. Sefialem argued that the core banking system, which commenced at the start of 2023, was the main culprit behind this—according to Abdulmenan, wages and other operating expenses soared due to the massive expansion of operations. He cautioned the management needs to keep an eye on this.

Ahadu Bank’s managment, under Sefialem Liben, who assumed his role in October 2023 after stints at the central bank, Bank of Abyssinia, and the Development Bank of Ethiopia (DBE), is keen on steering the bank towards long-term sustainability. Sefialem joined Ahadu Bank replacing Eshetu Fantaye, the founding president.

Ahadu Bank’s approach is outlined in a five-year strategic plan, which aims to carve out a niche market it can serve uniquely, Anteneh Sebsebie, board chairman, told shareholders during the general assembly in December last year.

For Abayneh Dinku, the branch manager at Bethel Area, it was a year of buildup. He saw the Bank focused on introducing products to customers and mobilising resources. Abayneh believes security issues may have affected performances, particularly among the unbanked.

“We need to double down on digital platforms,” he said.

The commitment of Ahadu’s management and shareholders to its vision is palpable. Desalegn Gudu, a founding shareholder who invested 20,000 Br, is upbeat about the Bank’s future.

“I hope to see a dividend by next year,” he said, echoing the shareholders’ optimism.

Ahadu has a net equity of 470.75 million Br and a capital adequacy ratio of 50.9pc, demonstrating a sufficient capital base. Its liquidity level reveals substantial liquid resources. Cash and bank balances accounted for 32.8pc of the total assets, although Abdulmenan saw this as standard for a newcomer to the industry.

“The executives need to use the resources efficiently in the years to come,” he told Fortune.

Power Supplier in the Dark

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In the aftermath of a scathing performance audit, Ethiopian Electric Power (EEP) finds itself thrust into the spotlight, facing mounting pressure to address systemic failures uncovered by the Office of the Federal Auditor General. Following what was deemed a lacklustre response to the audit findings, the Public Expenditure Administration & Control Affairs Standing Committee at Parliament has mandated EEP to devise an action plan within 30 days.

A series of exchanges between the Committee chairs and senior management of the state-owned enterprise revealed critical issues plaguing EEP. Chairwoman Yeshiemebet Demisse (PhD), stepping into the role after the arrest of former chair Christian Tadele, demands a comprehensive plan reflective of a sincere commitment to rectify raised issues. Acknowledging the weight of the matter, she threatened to dismiss the session in light of the CEO Ashebir Balcha’s late appearance who joined mid-session with an apology.

Poor record-keeping, operating without approved directives, mishandling of equipment, coordination deficiencies, theft of valuable items, and prolonged project delays were thrust into the spotlight. Of particular concern was the revelation that EEP had operated without approval for 18 directives and manuals crucial for the supervision of power transmission and distribution projects. This deficiency in oversight raised alarms about compliance with protocols and the ability to execute infrastructure initiatives.

Sumiya Desalew, an MP from the incumbent party, cited a profound concern over what she perceived as a glaring sense of disorganisation to address the persistent concerns voiced by citizens. She noted a discrepancy between EEP’s management practices and the timely approval of the necessary legal frameworks to govern its operations and questioned whether such lapses could potentially be constituted as “negligence” and serve as the root cause of the myriad failures.

Citing the Bahir Dar-Weldiya-Kombolcha 400/230KV transmission line project, which incurred an additional 121 million Br over seven years, Sumiya said an absence of structured supervision is observed, particularly in finances.

“What’s the point of management if projects are led haphazardly?” she asked.

Although the audit focused on a limited scope of resources provided by EEP from select projects, startling findings emerged on the mismanagement of assets.

Equipment valued at nearly 17 million dollars had been stolen from three projects between 2020 and 2022. On the other hand, only 11 out of 33 projects had been completed on schedule, with the remaining largely attributed to inadequate follow-up procedures.

The audit report uncovered a staggering loss of 1.2 billion Br in potential revenues from domestic power sales and nearly 1.1 million dollars in energy exports due to a lack of synergy between Ethiopian Electric Power and Ethiopian Electric Utility (EEU). Separated 13 years ago, EEU was entrusted with managing electricity distribution and bulk power purchases for resale. However, no agreement record could be found between the two entities, revealing systemic insufficiency.

Abera Taddese, deputy auditor general, said the action plan devised by EEP following the audit’s completion in June failed to specify the approval status of the 18 directives outlined in the report. The auditor mentioned that some problems arose from the high costs of power generation and the limited price point upon sale. However, he challenged the failure to conduct environmental impact studies for projects and the officials’ disregard for approved designs during construction.

According to Abera, three crucial meetings between—Contractor, Client, Consultant— were not consistently implemented, signalling a lack of effective communication and coordination within the project management framework.

“Feedback from the meetings was not incorporated,” Abera said.

Officials sought to address concerns.

Ashebir Balcha, CEO of EEP, said inefficiencies observed in transmission and distribution projects do not detract from EEP’s overall standing or its management of strategic endeavours such as the Great Ethiopian Renaissance Dam and Koysha power projects. The importance of promptly approving directives and manuals was stressed by the CEO while assuring that project quality remains uncompromised, aligning with international standards.

According to Ashebir, shortcomings identified in the audit do not amount to criminal conduct. He reassured stakeholders of ongoing efforts to obtain approval for necessary directives and manuals from the overseeing board.

“I’m not denying the audit findings were wrong,” Ashebir said. “But there is ongoing progress.”

The Standing Committee Chairwoman reiterated the critical importance of principled, rather than merely personal, relationships among officials. She underscored how the lack of such ties had resulted in major financial losses, with over one billion Birr foregone due to strained relationships. The CEO responded that a 1.2 billion Br estimation arose from EEP’s assessment of potential revenues if power distribution had been conducted through a proper grid system. He admitted to deficiencies in record-keeping in the realm of right-of-way compensation, which had contributed to the woes.

Ethiopian Electric Power finds itself entrenched in financial liabilities, standing as one of the most indebted public enterprises. Recent data from the Commercial Bank of Ethiopia (CBE) reveals that EEP accounts for nearly 36.9pc of the total outstanding corporate bond balance, nearing 208 billion Br. The substantial debt burden led to its absorption by the Liability & Asset Management Corporation, three years ago.

Habtamu Hailemichael, director general of Public Enterprises Holding & Administration (PEHA), contextualised the audit findings within the broader landscape of political and economic shifts. He said many of the findings predate recent changes in political administration, attributed to the exorbitant costs associated with power generation and the comparatively low selling rates within the sub-Saharan African region.

“Projects will be started only if their source of finance is secured,” Habtamu said.

The organisation’s strategic initiatives aimed at addressing its financial woes were put forth Executive Officer of Corporate Planning at EEP. Andualem Siae disclosed that comprehensive studies had been undertaken to analyse the cost structure of power generation, with revised tariff rates awaiting approval from the Energy Petroleum Authority (EPA).

He outlined efforts to diversify EEP’s revenue streams by expanding into new markets, including neighbouring countries and emerging sectors such as data centres.

“We’ve done cost projections extending up to four years,” he said.

However, Chairwoman Yeshiembet remained unimpressed by the explanations provided. She questioned the depth of the audit’s scrutiny, suggesting that the report merely scratched the surface of EEP’s extensive operations. She requested a thorough assessment of EEP’s performance and governance practices.

“We expect a detailed action plan promptly,” she said.

According to Yeshiemebet, closer ties with rural communities to raise awareness about the significance of the electric grid for livelihoods play a role in community engagement in safeguarding assets. She recommended that EEP align itself with nationwide reforms and modernise its technologies for efficient and effective service delivery.

“Every corner of the country is unsatisfied with electricity supply,” she said.

Veterans in the energy sector offer insights into large-scale public energy projects.

Yohannes Moges, a contractor and former employee of the organisation, said project delays and cost overruns stem primarily from a lack of effective follow-up and clarity in implementation strategies.

“Agile and coordinated response is vital to unforeseen circumstances,” he said.

Yohannes believes there are sufficient technical experts in the country to assist in almost every challenge that emerges during projects with proper leadership. He said the prevalent practice of offloading responsibilities between contractors and clients, is perpetuated by an incentive structure that rewards consultants as projects linger.

“Everyone should exhibit a sense of ownership,” he told Fortune.

A lack of commitment from contractors and mistimed budget allocations were echoed as fundamental issues plaguing the energy sector by Yemanebirhan Kiros, energy consultant and auditor. While codes and standards exist to ensure the procurement and installation of high-quality equipment, he observes their efficacy relies on the dedication of stakeholders.

Yemanebirhan recalls instances where funds are diverted to other investments intended for energy projects. He argues the importance of maintaining focus on the designated project goals and expenditures to prevent financial mismanagement.

“Contract setups should also be flexible to accommodate potential changes,” he said.

 

Wilting Tariffs Sprout Flower Exports

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The recent decision by the United Kingdom to suspend tariffs on fresh-cut flower imports has breathed new life into Ethiopia’s floriculture industry, igniting optimism and aspirations for the sector. Announced last week, this two-year tariff hiatus hopes to boost the trade relations of the UK government with East African countries dominant in flower exports.

Paul Walters, development director at the British Embassy, said the move is a pivotal opportunity to fortify economic ties between the two countries. He said the UK has been exploring trade policies that may be able to weave economic interests between countries heavily reliant on flower exports for some time.

“This will help significantly boost flower exports,” he told Fortune.

Though global in scope, the UK suspension holds particular hope for Ethiopian exporters, who stand as a powerhouse in sub-Saharan flower exports, constituting nearly 23pc of the market with around 13 million dollars in revenues last year. For Tewodros Zewde, head of the Ethiopia Horticulture Producers Exporters Association, this decision marks the culmination of four years of tireless advocacy for tariff removal. driven by the imperative of rekindling demand and reestablishing crucial business links with the UK market.

Ethiopia has managed to triple its export revenue in the past two decades covering 2,000hct and producing nearly a quarter of a million tons. However, the path to UK markets has been fraught with difficulties in the wake of Brexit’s seismic shifts in trade dynamics.

Located in Sululta, Sheger City, Samore Flower Farm Plc operates on 10hct plot exporting 20 million stems annually. Ronald Vijverberg, a shareholder, in the Dutch-owned company, recounts the formidable obstacles encountered post-Brexit. From logistical delays to bureaucratic hurdles, dampening the company’s once-thriving exports to the UK. He hopes to recover at least five percent of the lost market in the near term.

“It was never the same after Brexit,” he said.

Europe, the Middle East, and North America, constituting a formidable export revenue stream nearing half a billion dollars last year. The Netherlands emerges as a pivotal hub, with its iconic Flora Holland auction playing a central role in the global flower trade, facilitating the transit of nearly 70pc of the world’s flower and plant market.

Ethiopian Netherlands Business Association (ENLBA)was created to improve the business climate for the 75 Dutch businesses based in Ethiopia, which include 17 flower exporters. Hayo Hamster, head of the Association, expects the latest move to gradually resurrect the flower trade between the UK as demand recovers with the drop in prices boosting Ethiopia’s export revenue in the process.

“Less tariffs, more trades,” he told Fortune.

Some Dutch-based flower exporters have managed to sidestep the 8pc tariff rates for the last four years by engaging with buyers located in the UK and transporting the flowers by aeroplanes.

Operating on a 40hct plot in Batu (Zeway), Oromia Regional State, Herburg Roses, exports around 60pc of its 120 million stems annually to the UK. Jos Klijs, general manager, said they could not afford to leave the UK markets, which were growing by 10pc annually.

“It’s more profitable than the rest of Europe,” he told Fortune. “We can’t afford to lose our buyers.”

Ministry of Agriculture has taken note of the development but remains cautious over making any long-term commitments.

Alemayehu Gebreselassie, the senior horticulture and investment coordinator at the Ministry, said the real impacts of the tariff removal will take time to surface fully, as they plan to conduct a thorough assessment of the outcomes. Alemayehu said the flower market has plateaued over the past few years due to the proliferation of producers in the international markets and the drop in production locally.

“We might revise floor prices after the assessment finishes,” he told Fortune.

Economists such as Shimelis Araya (PhD) point to an inevitable drop in prices as quantity flowing into the UK market increases with no particular change to demand.

“The country’s flower industry is highly intertwined with global winds,” he told Fortune.

According to Shimelis, export revenues will not increase without strategic upgrades to production. Shimelis believes elevated flower exports will arise only through a shift towards quality that is unreplicable by competing countries like Columbia and Ecuador, which are currently focused on quantity. He recommends updating greenhouse practices, adopting high-demand sustainable practices, and incorporating climate-friendly technology to better understand the market.

“Evolved marketing strategies are necessary,” Shimelis said.

 

Tripartite Accord Falters as External Powers Vie for Influence in the Horn of Africa

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The Comprehensive Tripartite Cooperation agreement, signed in September 2018 in Asmera between Eritrea, Ethiopia, and Somalia leaders, was noteworthy in many ways. Signed with the aspiration of engendering a durable peace in the region, it promised to fortify ties and promote cooperation across various political, economic, social, cultural, and security issues. It proved particularly striking when Ethiopia faced heightened pressure from Western countries, notably the United States, over its internal conflicts.

The diaspora communities from Eritrea and Somalia supported the Ethiopian government during this period. They actively participated in large-scale peaceful protests organised by the Ethiopian diaspora in various Western countries. The rallying cry “Hands Off from Ethiopian Affairs” galvanised these protests, a sentiment that echoed a collective opposition against what was perceived as foreign interference.

Neither was the diplomatic solidarity unpalpable, with the incumbent Minister of Foreign Affairs, Taye Atskeselassie, then Ethiopia’s ambassador to the UN, acknowledging the support of Eritrean and Somali missions during Ethiopia’s times of need. The diplomatic effort, described by some as “victory diplomacy,” was crucial in steering the international stormy waters Ethiopia found itself in at the time.

The unity the tripartite agreement ignited also manifested digitally through a campaign spearheaded by figures such as Simon Tesfamariam, an Eritrean-American, and Hermela Aregawi, an Ethiopian-American with over a decade of experience in the media. The campaign, which used the hashtag “No More” on social media platforms like X (formerly Twitter), was a direct outcome of the girded ties under the agreement, countering what they perceived as undue Western influence over Ethiopia’s sovereignty.

However, the initial promise of cooperation heralded by the Asmera agreement appears to be eroding. Critics point to the influence of Western policies, particularly those from the White House, as a destabilising force in the region. The current involvement of the United Arab Emirates (UAE) in the Horn of Africa is viewed by some as a continuation of these disruptive external influences, purportedly supported by Washington.

The UAE’s policies, particularly in crisis-stricken Sudan, have drawn scrutiny. The Gulf nation has been blamed for exacerbating the conflict, supplying military weapons and logistics to the Rapid Support Forces (RFS), and contributing to civilian casualties. Despite the gravity of these allegations, there has been a notable absence of condemnation from major international actors, including the United States, the United Nations, and the Arab League.

In contrast, the African Union (AU) has taken a firmer position in other regional matters, such as suspending Sudan from its activities in response to internal conflicts. Yet, its silence over the UAE’s involvement in the Horn of Africa has been conspicuous, raising questions about its consistency and the geopolitical influences at play.

However, UAE’s political ploy extends beyond Sudan. There is growing concern that the Emirates is promoting division in Somalia, engaging politically with leaders from Somaliland and Puntland amid their tensions with Mogadishu. Such actions are perceived as part of a broader strategy by the UAE to ensure the Horn of Africa is under its sphere of influence, serving its political and economic interests, which could include control over key ports, logistics, and mining operations.

The strategy is mirrored in the UAE’s dealings across the region, including its involvement in Yemen. The Emirates has facilitated military operations against Yemen by allowing US and British warplanes to launch strikes from an airbase near Abu Dhabi — a policy that contrasts with the more cautious approach taken by Saudi Arabia. Jeddah appears wary of jeopardising its renewed diplomatic ties with Iran amidst the ongoing Yemeni crisis.

The geopolitical ramifications of these actions are profound, potentially inciting further conflict in an already volatile region. The Gaza Strip crisis threatens to escalate tensions further, complicating the geopolitics of the Red Sea, a critical global shipping lane.

Considering this, there are calls for the UAE’s current leaders to recall the legacy of Zayed bin Sultan Al Nahyan (Sheikh), the country’s founding father. Known for visionary leadership and wisdom, his philosophy emphasised the value of human worth over material wealth and the importance of regional stability and cooperation. Indeed, lasting wealth and security come not from dominion over strategic ports or resources but through promoting genuine partnerships that prioritise the well-being and aspirations of the region’s people.

 

True Magic of Escaping Comfort Zones

Posted on by Tizita S.

A literary marvel crafted over four centuries ago has whisked me away into the fantastical realm of a noble hero last week. The character, Don Quixote, draws inspiration from the countless tomes that line his shelves, each recounting the valorous deeds of knights from across Europe. He adopts the gallant persona of a knight, adorned with chivalry in his fervent pursuit of justice.

Spanning nearly a thousand pages, Miguel de Cervantes’ masterpiece unfolds with whimsical and absurd characters. But beneath the laughter rests a profound meditation on the enduring human quest for a just world. The outlandish antics and the motley crew that surrounds him serve as a reminder of the unanswered questions that stir the depths of the human imagination.

In literary history, “Don Quixote” stands as a timeless classic, rivalled in popularity by J.K. Rowling’s monumental “Harry Potter” series. The juxtaposition of these two works, separated by centuries, is a testament to their relevance and universal appeal. Intrigued by the meteoric rise of Rowling, a latecomer whose literary prowess has left an indelible mark on the cultural arena, I embarked on a journey through the pages of an exclusive documentary chronicling her life.

I was astounded to find out that humble beginnings and daunting trials preceded her veneer of success. Rowling weathered the storms of financial hardship and personal strife while going through single parenthood before building a billion-dollar franchise. However, from the ashes of despair emerged a resolute spirit, forging a path forward from the depths of adversity.

It is tempting to seek solace in excuses while casting blame on external forces. Upon closer examination, the obstacles may be self-imposed barriers constructed from false beliefs and comfort zones. It is human nature to lament the enormity of life’s misfortunes, finding refuge in the familiar embrace of our limitations. However, when we dare to scrutinise our excuses under the microscope of introspection, we uncover that procrastination serves only to perpetuate a skewed worldview.

In a competitive world clouded by economic uncertainty, the pursuit of success can seem like an uphill battle. The voices clamouring for attention—be it the relentless chatter of social media or the grim depictions of reality—we must remain steadfast in pursuit of our dreams. It is easy to be swayed by the pessimism of naysayers or become ensnared in irrelevant information. But opportunities abound for those willing to seize them.

We need to embrace the discomfort of change and chart a new course. It is by confronting our fears that we can break free from the shackles of mediocrity. Existentialist philosopher Jean-Paul Sartre once remarked that mankind is condemned to be free, but it is through the embrace of this freedom that we discover our true potential. To succumb to conformity is to relinquish our agency, while to embrace the unknown is to embark on a journey of self-discovery.

I forged a friendship with a European acquaintance who revealed immigrants from my homeland had the highest rate of overstaying tourist and educational visas, settling in the host country against the terms of their entry. I sought to demonstrate through personal photos that not all immigrants could be painted with the same brush but realised that while my gesture may offer some consolation, it would not fundamentally alter his justified concerns.

While his words struck a disheartening chord, there was a kernel of truth in his observation. Indeed, many Ethiopians had breached the trust placed in them, tarnishing the reputation of their fellow countrymen seeking to travel abroad.

Many have ventured to the Middle East, Europe, and North America in search of better opportunities. The allure of a higher financial reward leads individuals to pursue professional roles below their qualifications, with the belief that emigration is the panacea for life’s difficulties.

While it is true that some may find improved material conditions in host countries, there are also instances where the reality falls short of expectations, and individuals may find themselves worse off than in their homeland. The destabilising effects of emigration can disrupt lives and fracture communities, prompting some to return to familiar shores in search of stability.

Residents in developed countries suffer from economic woes too. J.K. Rowling’s journey serves as a reminder of this reality, as she endured dire circumstances for a substantial portion of her life. Economic factors undoubtedly play a significant role in driving individuals to seek opportunities abroad. However, it is imperative to recognise that economic woes cannot be solely resolved through emigration but by creative solutions, thrift, and hard work.

It is not the destination that defines us, but the journey itself – marked by courage and determination. We should cast aside the shadows of doubt and fear, for it is only by embracing the unknown that we truly come alive. As I continue to follow the exploits of Don Quixote, I am reminded of the indomitable spirit that propels him forward, undeterred by the laughter of sceptics or the difficulties that lie ahead. In his quest for truth and justice, he serves as a beacon of hope, inspiring us to follow our hearts wherever they may lead.

The Hidden Costs of “Slowbalisation”

Posted on by Tizita S.

The emergence of an open multilateral trading system that separated trade from geopolitics played a pivotal role in driving the post-World War II economy. But with trade policies increasingly shaped by geopolitical considerations, a new paradigm is becoming visible.

This trend started with the tariffs that former US President Donald Trump imposed on Chinese imports in 2018, which President Joe Biden’s administration has maintained, and which caused China to impose its own tariffs on imports from the United States. Then, in 2022, following Russian President Vladimir Putin’s invasion of Ukraine, G7 countries and the European Union (EU) imposed sweeping economic sanctions on Russia, effectively prohibiting exports to Russia and imports of Russian goods.

Instead of causing global trade to fall, as many expected, these trade barriers and restrictive measures merely slowed down globalisation, turning it into “slowbalisation.” Remarkably, despite the war in Ukraine and the supply-chain disruptions of the past few years, trade as a percentage of GDP reached a record high in 2022, underscoring the resilience of the international trading system. The increases in container-shipment prices since 2022 can be attributed to an unexpected surge in the volume of goods shipped globally.

But, while it may be tempting to argue that geopolitically motivated measures have had a negligible economic impact, the perceived resilience of global trade can be misleading. Although the recent trade barriers led to higher trade volumes, many carry significant costs.

At first glance, the notion that a tariff could boost trade may seem paradoxical. But, almost all the tariffs and trade restrictions imposed by the US since 2018 have been specifically aimed at China, leaving imports from other countries untouched. Consequently, imports from China have fallen sharply, while imports from countries like Vietnam have surged. Many consumer products shipped to the US are now assembled in Vietnam and other Southeast Asian countries.

However, these imports still rely on intermediate inputs from China. Consequently, trade volumes have grown because, while US imports of consumer goods from Asia have remained consistent, China’s exports of intermediate inputs to its Asian neighbours have increased. Similarly, although Mexico has overtaken China as the leading exporter of goods to the US, its imports from China have surged by nearly 40pc since 2018.

The electric vehicle (EV) market illustrates how discriminatory practices can boost trade. Tariffs on Chinese EVs are approaching 30pc. American regulations disqualify EVs containing components produced or assembled in designated “entities of concern” from receiving tax credits, effectively excluding Chinese manufacturers from the American market. By contrast, European EVs are subject to a significantly lower tariff of 2.5pc and qualify for a 7,500 dollar subsidy under the Inflation Reduction Act when leased. Consequently, Chinese EV exports have shifted to Europe, while European automakers have found success in the US.

The EU is undergoing a similar shift. In the wake of Western sanctions on Russia, European exports to Turkey and Central Asian countries such as Kazakhstan and Kyrgyzstan have skyrocketed. At the same time, trade volumes between these countries and Russia have soared.

Such methods of circumventing sanctions or discriminatory tariffs result in higher production and logistics costs, as goods must now be shipped to intermediate countries before being transported to the US. Sanctions and discriminatory tariffs can thus boost trade and reduce welfare. These harmful consequences underscore the importance of the “most-favoured nation” principle that has long been the cornerstone of the global trading system.

Concerted efforts to liberalise trade, first through the General Agreement on Tariffs & Trade (GATT) and subsequently through the World Trade Organisation (WTO), have increased trade volumes and overall welfare thanks to their non-discriminatory approach. By contrast, today’s geopolitically driven discriminatory tariffs and trade barriers explicitly target specific countries viewed as hostile or potential threats.

Who pays the price?

Economic theory (and common sense) provides a clear answer: countries that impose discriminatory trade restrictions end up bearing the costs while the rest of the world benefits. Consequently, the US and China are negatively affected by their tariff war, while Vietnam and Mexico gain by serving as intermediaries. Turkey and Central Asian countries benefit from sanctions against Russia, while the EU foots the bill.

This distribution of costs and benefits helps explain the limited international opposition to Trump’s China tariffs. After all, the EU, Mexico, or Vietnam have little incentive to object to a US policy that benefits their industries. Consequently, international pressure will unlikely deter major powers like the US or China from prioritising geopolitical strategies over trade liberalisation. To counter this tendency, it is crucial to make political leaders aware of the adverse effects of trade barriers.

As the most open and least geopolitically ambitious of the world’s major economic powers, the EU is likely to recognise this first. But, the stakes are much higher for the US and China. The US, in particular, would lose the most if it continued its trade war with China. To prevent this outcome, the course must change and return to the non-discriminatory principles that have long underpinned global trade policies.

Is the World Ready for AI Creative Destruction?

Posted on by Tizita S.

The ancient Chinese concept of “yin and yang” attests to humans’ tendency to see patterns of interlocked opposites in the world around us, a predilection that has lent itself to various theories of natural cycles in social and economic phenomena. Just as the great medieval Arab philosopher Ibn Khaldun saw the path of an empire’s eventual collapse imprinted in its ascent, the 21st-century economist Nikolai Kondratiev postulated that the modern global economy moves in “long wave” super-cycles.

But no theory has been as popular as the one – going back to Karl Marx – that links the destruction of one set of productive relations to the creation of another. Writing in 1913, the German economist Werner Sombart observed that, “from destruction a new spirit of creation arises.”

It was the Austrian economist Joseph Schumpeter who popularised and broadened the scope of the argument that innovations perennially replace previously dominant technologies and topple older industrial behemoths. Many social scientists built on Schumpeter’s idea of “creative destruction” to explain the innovation process and its broader implications. These analyses also identified tensions inherent in the concept.

For example, does destruction bring creation, or is it an inevitable by-product of creation? More to the point, is all destruction inevitable?

In economics, Schumpeter’s ideas formed the bedrock of the theory of economic growth, the product cycle and international trade. But, two related developments have catapulted the concept of creative destruction to an even higher pedestal over the past several decades.

The first was the runaway success of Harvard Business School professor Clayton Christensen’s 1997 book, “The Innovator’s Dilemma,” which advanced the idea of “disruptive innovation.” Disruptive innovations come from new firms pursuing business models that incumbents have deemed unattractive, often because they appeal only to the lower end of the market. Since incumbents tend to remain committed to their business models, they miss “the next great wave” of technology.

The second development was the rise of Silicon Valley, where tech entrepreneurs made “disruption” an explicit strategy from the start. Google set out to disrupt the internet search business, and Amazon set out to disrupt the business of book selling, followed by most other retail areas. Then came Facebook with its mantra of “move fast and break things.” Social media transformed our social relations and how we communicate in one fell swoop, simultaneously epitomising creative destruction and disruption.

The intellectual allure of these theories lies in transforming destruction and disruption from apparent costs into obvious benefits. But, while Schumpeter recognised that the destruction process is painful and potentially dangerous, today’s disruptive innovators see only win-win. Hence, the venture capitalist and technologist Marc Andreessen writes: “Productivity growth, powered by technology, is the main driver of economic growth, wage growth, and the creation of new industries and new jobs, as people and capital are continuously freed to do more important, valuable things than in the past.”

Now that hopes for artificial intelligence exceed even those of Facebook in its early days, we would do well to re-evaluate these ideas.

Innovation is sometimes disruptive by nature, and the process of creation can be as destructive as Schumpeter envisages it. History shows that unrelenting resistance to creative destruction leads to economic stagnation. But it does not follow that destruction ought to be celebrated. Instead, we should view it as a cost that can sometimes be reduced, not least by building better institutions to help those who lose out, and sometimes by managing the process of technological change.

Consider globalisation. While it creates important economic benefits, it also destroys firms, jobs, and livelihoods. If our instinct is to celebrate those costs, it may not occur to us to try to mitigate them. And yet, there is much more that we could do to help adversely affected firms (which can invest to branch out into new areas), assist workers who lose their jobs (through retraining and a safety net), and support devastated communities.

Failure to recognise these nuances opened the door for the excessive creative destruction and disruption Silicon Valley has pushed on us these past few decades. Looking ahead, three principles should guide our approach, especially when it comes to AI.

First, as with globalisation, helping those adversely affected is of the utmost importance and must not be an afterthought. Second, we should not assume that disruption is inevitable. As I have argued previously, AI need not lead to mass job destruction. If those designing and deploying it do so only with automation in mind (as many Silicon Valley titans wish), the technology will create only more misery for working people. But it could take more attractive alternative paths. After all, AI has immense potential to make workers more productive, such as by providing them with better information and equipping them to perform more complex tasks.

The worship of creative destruction must not blind us to these more promising scenarios, or to the distorted path we are currently on. If the market does not channel innovative energy in a socially beneficial direction, public policy and democratic processes can do much to redirect it. Just as many countries have already introduced subsidies to encourage more innovation in renewable energy, more can be done to mitigate the harms from AI and other digital technologies.

Third, we must remember that existing social and economic relations are exceedingly complex. When they are disrupted, all kinds of unforeseen consequences can follow. Facebook and other social media platforms did not set out to poison our public discourse with extremism, misinformation, and addiction. But in their rush to disrupt how we communicate, they followed their principle of moving fast and then seeking forgiveness.

We urgently need to pay greater attention to how the next wave of disruptive innovation could affect our social, democratic, and civic institutions. Getting the most out of creative destruction requires a proper balance between pro-innovation public policies and democratic input. If we leave it to tech entrepreneurs to safeguard our institutions, we risk more destruction than we bargained for.

 

Supreme Court Rattles the Foundations of Corporate Law

Posted on by Tizita S.
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The Future of Work in the Artificial Intelligence Era

Posted on by Tizita S.

Recent discussions about the implications of artificial intelligence (AI) for employment have veered between the poles of apocalypse and utopia. Under the apocalyptic scenario, AI will displace a large share of all jobs, vastly exacerbating inequality as a small capital-owning class acquires productive surpluses previously shared with human labourers.

The utopian scenario, curiously, is the same, except that the very rich will be forced to share their winnings with everyone else through a universal basic income or similar transfer program. Everyone will enjoy plenty and freedom, finally achieving Marx’s vision of communism, where it is “possible for me to do one thing today and another tomorrow, to hunt in the morning, fish in the afternoon, rear cattle in the evening, criticise after dinner, just as I have a mind, without ever becoming hunter, fisherman, herdsman, or critic.”

The common assumption in both scenarios is that AI will vastly increase productivity, forcing even highly paid doctors, software programmers, and airline pilots to go on the dole alongside truck drivers and cashiers. AI will not only code better than an experienced programmer; it will also be better at performing any other tasks that the coder might be retrained to do. But if all this is true, AI will generate unheard-of wealth that even the most extraordinary sybarite would have trouble exhausting.

The dystopic and utopian outcomes reduce AI to a political problem: whether the left-behind (who will have the advantage of numbers) can compel the AI tycoons to share their wealth. There is a reason for optimism. First, the gains from AI under this scenario are so extravagant that the super-rich might not mind giving up a few marginal dollars, whether to appease their consciences or to buy social peace. Second, the growing mass of the left-behind will include highly educated, politically engaged people who will join the traditionally left-behind in agitating for redistribution.

But there is also a deeper question.

How will people respond, psychologically and politically, to the realisation that they can no longer contribute to society by engaging in paid work?

Labour-force participation has already declined significantly for men since the 1940s. Though women entered the workforce in large numbers only in the 1970s and 1980s, their participation rate also began to decline. This may well reflect a trend of people at the bottom losing the capacity to convert their labour into compensable value as technology advances. AI could accelerate this trend, defenestrating people at the middle and top as well.

If the social surplus is shared widely, one might ask, “Who cares?”

In the past, upper-class members avoided taking jobs and disdained those who did. They filled their time with hunting, literary pursuits, parties, political activities, hobbies, and so on – and they seem to have been rather pleased with their situation (at least if the bored gentry idling in summer dachas in Chekhov’s stories are to be ignored).

Modern economists tend to think of work in the same ways, as simply a cost (“c”) that must be offset by a higher wage (“w”) to induce people to work. Like Adam and Eve, they implicitly consider work to be pure bad. Social welfare is maximised through consumption, not through the acquisition of “good jobs.” If this is right, we can compensate people who lose their jobs by giving them money.

Maybe human psychology is flexible enough that a world of plenty and little or no work could be regarded as a boon rather than an apocalypse. If aristocrats of the past, retirees of today, and children of all eras can fill their time with play, hobbies, and parties, perhaps the rest of us can, too.

But, research indicates that the psychological harms of unemployment are significant. Even after controlling for income, unemployment is associated with depression, alcoholism, anxiety, social withdrawal, disruption of family relations, worse outcomes for children, and even early mortality. The recent literature on “death of despair” provides evidence that unemployment is associated with elevated suicide and overdose risk. The mass unemployment linked to the “China shock” in some regions of the United States was associated with elevated mental health risks among those affected.

Loss of self-esteem and a sense of meaning and usefulness is inevitable in a society that valorises work and scorns the unemployed and unemployable.

As such, the long-term challenge posed by AI may be less about redistributing wealth and more about preserving jobs in a world in which human labour is no longer valued. One proposal is to tax AI more relative to labour, whereas another – recently advanced by MIT economist David Autor – is to use government resources to shape the development of AI so that it complements rather than substitutes for human labour.

Neither idea is promising. If the most optimistic predictions about AI’s future productivity benefits are accurate, a tax would have to be tremendously high to have any impact. AI applications are likely to be complements and substitutes. After all, technological innovations generally enhance some workers’ productivity, while eliminating others’ tasks. If the government steps in to subsidise complementary AI – say, algorithms that improve writing or coding – it could just as easily end up displacing jobs as preserving them.

Even if taxes or subsidies can keep alive jobs that produce less value than AI substitutes, they will merely be putting off the day of reckoning. People who derive self-esteem from their jobs do so partly because they believe society values their work. Once it becomes clear that their work can be done better and more cheaply by a machine, they will no longer be able to maintain the illusion that their work matters. If the US government had preserved the jobs of buggy-whip makers when automobiles displaced horse-drawn carriages, one doubts that those positions would still confer much self-esteem on anyone who took them today.

Even if humans can adjust to a life of leisure in the long term, the most optimistic projections of AI productivity portend massive short-run disruptions to labour markets, akin to the impact of the China shock. That means substantial – and for many people, permanent – unemployment. There is no social safety net generous enough to protect people from the mental-health effects, and society from the political turmoil, that would follow from such widespread disappointment and alienation.

Silencing Inner Critic: One Size Does Not Fit All

Posted on by Tizita S.

A couple who had refrained from social interactions paid a visit to my house last week. Observing them interact with my daughter was truly heartening. They bonded effortlessly with her, eliciting joyful laughter and playful interactions. My baby seemed drawn to them, displaying comfort in their presence.

It was surprising. They were a reserved duo who did not mingle with people due to apprehension about facing judgmental individuals. I was taken aback when the woman confided in me about their lives. They were married at a young age, and have persevered for over a decade. Their lives have been marked by successful careers and a comfortable lifestyle. However, a tragic accident left them with extensive physical injuries and thwarted their ability to have children.

When confronted with inquiries, they respond with grace, recognising that some matters are beyond their control. In return, they endured years of unwarranted blame and judgment. Some went as far as suggesting that their marriage lacked value without children, urging the husband to abandon his wife in pursuit of parenthood with another woman. She was unjustly labelled as a selfish person who prioritised career over motherhood.

She expressed gratitude for my family’s discretion over their lives in the two years of our acquaintance. It was rare for her to encounter such understanding and respect, which encouraged her to open up.

There are those individuals who are excessively opinionated, imposing their views on others without consideration. Their unkind words inflict hurt and disappointment, lacking any insight into the struggles and experiences of those they criticise. It seems many fail to take responsibility for their words and actions, freely expressing whatever comes to mind without considering the impact.

Judgment is inevitable. However, it becomes agonising for some, hindering their ability to socialise and find peace.

Too often, individuals criticise and judge others simply because they do not conform to societal expectations. We discussed how these destructive behaviours pervade our society, detrimentally impacting countless individuals’ mental well-being, social lives, and emotions. It is as if people forget that individuals have the freedom to make their own decisions, instead choosing to meddle and inflict hurt.

Critiques are endless regardless of the action. Whether someone gains or loses weight, has children, or remains single, there is that unsolicited advice lurking in the background. It can be frustrating, particularly when it comes from family members or peers.

Some individuals feel compelled to comment on others’ lives, without proper understanding. The prospect of someone facing difficulties triggers a desire to criticise and dictate what they should do. It may be attributed to the validation of our deep-seated desire to solve problems. While it makes life interesting, it also puts pressure on those who opt to defy the norm.

In a world where social media amplifies voices and facilitates instant communication, it is easier for individuals to insert themselves into the lives of others without considering the consequences. The digital age has blurred the lines between personal and public spaces, making it difficult for individuals to maintain boundaries.

We should afford others the grace to live free from unwarranted judgment and interference. While offering help to others is a natural inclination and a sign of empathy within us, it is essential to respect people’s boundaries and draw lines.