Commentaries | May 23,2020
Jun 24 , 2023
By Yehualashet Tamiru Tegegn
Ethiopia, often lauded as an African economic tiger, now faces severe financial difficulties, with a looming threat of default and potential economic and social collapse. The government's primary strategy has been attracting foreign investment to restore its diminishing foreign currency reserves, writes Yehalashet T. Tegegn (email@example.com), an adjunct lecturer of law at Addis Abeba Univerity.
Under the shadow of Africa's second-highest peak, Ethiopia is teetering on a precipice. Often hailed as an African economic tiger, the country is now beleaguered by a cascade of financial troubles that present not only a threat of default but also of a broader social and economic breakdown. This raises questions about the judiciousness of betting on foreign investment as the primary panacea.
The Ethiopian government is currently trying to court its creditors into an agreeable debt restructuring plan, yet tangible progress remains elusive. The country's coffers are strained, and bankruptcy looms ominously on the horizon. Default is now a question of when - not if - unless a credible debt restructuring strategy is implemented. The authorities are toying with all available fiscal levers in a desperate bid to buoy the sinking ship.
Tax rates are being tweaked, and public expenditure is pruned. Notably, a concerted effort to woo foreign investment is being pursued. The latter is seen as a lifeline to replenish the evaporating foreign currency reserves. However, in pursuing short-term gains, the government risks making long-term mistakes. Its endeavour to privatise public enterprises, and concessions to foreign investors, may come at the expense of domestic interests. The allure of foreign currency is strong, yet it should not lead the government into overpromising or overstretching protections for investors.
Each policy action invariably births winners and losers. An aggressive pursuit of foreign investment can tip the scales unfavourably for domestic stakeholders.
Take, for instance, the government's attempts to expand its revenue base by increasing the tax base or tax rates. While this may put more money into the national purse, the average Ethiopian employee or consumer bears the brunt of these changes. Conversely, reducing taxes may make for happier consumers but drains the state's resources.
This tug-of-war between domestic and international interests also extends to investor protection. While respecting investment treaties can reassure investors, it may come at a high cost for the country. Protection measures may imply giving up a degree of control over national resources and sacrificing larger economic objectives. The economic guarantees offered by Ethiopia should not be perceived as an absolute entitlement for investors, overriding the country’s broader interests. Economic crises can have far-reaching impacts on social and human rights, and no investor’s rights, usually property rights, should overrule the fundamental human rights of the citizens.
Investors naturally desire protection from risk, but the scales must be balanced. The same investors who benefit from a prosperous economy should also bear some of the burdens when public policy measures are required in response to economic downturns. Investing involves risk, and it is unrealistic for investors to expect protection from all eventualities.
While offering protections and incentives to investors may address Ethiopia's short-term problems, it risks creating a time bomb for the future. The government should retain the right to adjust its policies as needed, and these rights should be clearly stated in investment agreements. Failing to do so could see Ethiopia repeating the missteps of Argentina in the early 2000s.
In that instance, in the grip of a severe economic crisis, Argentina attempted to stabilize its economy through structural reforms, fiscal discipline, and a sweeping privatisation of state-owned entities. Despite its desperate situation, the government retained the right to regulate investors' fee schedules, indicating an attempt to retain control even amidst chaos.
In 2002, Argentina took a bold step. It unpegged its currency from the US Dollar, a move known as "pesification," which affected all contracts and payments in Argentina. This was a gamble aimed at controlling hyperinflation and stimulating growth. However, the decision was challenged by foreign investors who took their cases to international arbitration tribunals, alleging a breach of the Bilateral Investment Treaties (BITs). The tribunals ruled in favour of the investors, a chilling precedent for countries like Ethiopia looking to walk a similar path.
The analogy is important in the Ethiopian context, not only to illustrate the risks of overcommitment to investors but also to remind us of the social and human rights ramifications of an economic collapse. As Argentina's economy imploded, fundamental rights such as security and health were undermined. Similarly, Ethiopia's present economic struggle is not just a financial crisis; it has profound implications for its people's quality of life and human rights.
The lessons from Argentina should caution Ethiopia against over-promising in its bid to attract foreign investment. Overreaching to secure foreign currency could plunge it into more profound economic and social turmoil. While international investment may offer a short-term solution, the government must retain control over its economy to protect long-term stability.
It would be remiss to overlook the role of multinational corporations and foreign investors in modern economies. Their influence in shaping economic landscapes, creating job opportunities, and bolstering foreign currency reserves is indisputable. For developing countries like Ethiopia, these factors are particularly salient.
However, hunting for foreign currency and investment should not override the duty to protect citizens' welfare. The government must balance protecting investors and preserving its ability to regulate the economy in the public's interest. This includes retaining the right to amend public policies and ensure investment agreements incorporate such provisions.
Ethiopia's predicament underscores a critical lesson for other economies teetering on the brink of a similar crisis. There is a fine line between attracting foreign investment and sacrificing long-term national interests for short-term gains. As countries navigate these treacherous waters, the priority should always be to protect their economic sovereignty and the welfare of their citizens.
By avoiding the temptation to overpromise, by staying firm on protecting the rights of its citizens and by retaining its ability to change its public policies as and when needed, Ethiopia might still be able to navigate through this storm, emerging more assertive and resilient in the other side. It is a journey fraught with challenges, but with thoughtful navigation, the promise of a brighter future remains alive.
PUBLISHED ON Jun 24,2023 [ VOL 24 , NO 1208]
Commentaries | May 23,2020
Radar | Nov 19,2022
Radar | Apr 24,2023
Sunday with Eden | Nov 26,2022
Commentaries | Oct 30,2022
Radar | Feb 09,2019
Radar | Jul 11,2021
Radar | Aug 21,2023
Fortune News | Oct 30,2021
Fortune News | Jul 18,2020
Photo Gallery | 83069 Views | May 06,2019
Photo Gallery | 75225 Views | Apr 26,2019
Fineline | 58731 Views | Oct 03,2020
Fortune News | 58496 Views | Jul 18,2020
Commentaries | Dec 02,2023
Life Matters |
My Opinion | Dec 02,2023
Sunday with Eden | Dec 02,2023
Agenda | Dec 02,2023
Editorial | Dec 02,2023
Dec 24 , 2022
Biniam Mikru heads the department of cabinet affairs under Mayor Adanech Abiebie. But...
Jul 2 , 2022 . By RUTH TAYE
On a rainy afternoon last week, a coffee processing facility in the capital's Akaki-Qality District was abuzz with activ...
Nov 27 , 2021
Against my will, I have witnessed the most terrible defeat of reason and the most sa...
Nov 13 , 2021
Plans and reality do not always gel. They rarely do in a fast-moving world. Every act...
Leaders of the National Election Board are in a charm offensive mood, of a sort. Last week, they organised a rare tour for members of the me...
When the country's most senior diplomats and envoys return back to their posts after two-week debriefings, they leave behind a point or two...
Dec 2 , 2023
The symphony of traffic noise in Addis Abeba is not just a sign of life, but a siren...
Nov 25 , 2023
Ethiopia's quest to develop a functioning capital market is a demanding yet not unach...
Nov 18 , 2023
Prime Minister Abiy Ahmed (PhD) has made a fervent call for landlocked Ethiopia to ga...
Nov 11 , 2023
In November last year, a ray of hope pierced the gloomy skies of Ethiopia as the Pret...
I have a love-hate relationship with my phone. It is my go to source for information. I enjoy interacting with text messages and browsing t...
Over the weekend, I attended a wedding where my husband was one of the protocols. Despite the typical joy...
Dec 2 , 2023 . By MUNIR SHEMSU
Mamo Mihretu, the governor of the National Bank of Ethiopia (NBE), has outlined a com...
Dec 2 , 2023 . By AKSAH ITALO
BGI Ethiopia, one of the largest brewing companies, is in the throes of a major trans...
Minister of Agriculture, Girma Amentie (PhD), is leading a charge to overhaul the fer...
Dec 2 , 2023 . By AKSAH ITALO
Amidst accession to a cross-regional trade, one of the oldest industries is strugglin...
Or see contact page