Radar | Oct 31,2020
July 18 , 2021
By Christian Tesfaye ( Christian Tesfaye (firstname.lastname@example.org) is a researcher and Fortune's Deputy Editor-in-Chief whose interests run amok in the directions of political thought, markets, society and pop culture. )
Over the past two decades, there have been two significant economic challenges that have been a headache for policymakers. One is the foreign currency shortage, which famously led Sufian Ahmed, former Finance Minister, to remark that it would not be addressed in his lifetime. Indeed, as businesses across the country can attest, it is unlikely to be.
The other thorn in the nation’s economy is inflation which, in a good year, would be just double the global rate of about three percent. Currently, it stands at 24.5pc, one of its highest levels in about a decade. The pain is most felt by consumers, unlike businesses that can simply choose to transfer the increase down the chain. But high inflation is not merely putting a burden on people’s consumption. The main pain it exacts is over depreciating the value of their wages and savings. It is an unofficial tax on citizens, and even more so in Ethiopia.
It is possible to survive these times of high inflation. One needs to be smarter with their investments, granted there are not many of them out there as far as Ethiopia is concerned. In most developed countries, inflation becomes an issue when the central bank begins quantitative easing to buy government bonds. It is a fancier, less obvious way of printing money, but it is the same logic. Inflation pokes its head as a result, as it is doing now in the United States.
Most investors will then begin unloading their dollars through currency trading. If each dollar is going to depreciate in value, as its ability to buy goods and services takes a hit, better get rid of it for another currency still holding strong. This is not allowed in Ethiopia, as monetary policy is still pretty tight. The same also goes for investing in cryptocurrencies, which have risen in a few years to become popular investment options.
Another alternative is the stock market, especially on mortgage-backed securities. As in Ethiopia, in times of a depreciating Birr, the values of assets such as houses grow. It is even a good idea to go into debt, or buy debt, to buy a house or some other property such as a car. Vehicles are good investment options in Ethiopia, unlike in the developed world, where the value of cars depreciate over time. Debt is borrowing money now to return it at another time – since the currency is depreciating, a million Birr borrowed now will be worth more in a years time, even with interest rates factored in.
Unfortunately, this will only work for people with large capital. For people who have modest savings, say half a million Birr, it is hard to afford to buy even a car these days. Neither is it possible for such savers to turn to banks for loans – to start a business or buy an asset – as the requirements for getting credit is tied either to collateral or at least having a close relationship with bank executives high up.
What is left then?
The introduction of a capital market is promising for Ethiopia. It requires a lot of work, especially as the ecosystem of brokers and dealers is missing. But it can provide the public with crucial investment options in financial institutions and new start-up listings.
Until then, it is perhaps best to consider investing in certain types of products unlikely to be affected by inflation. Businesses may try and carry the higher costs of sourcing and production, but at some point, they will be forced to transfer them to consumers. This could be bad for the business, but it has all to do with “elasticity.”
Higher prices will hurt hoteliers or restaurants, as they provide luxury services. Importers of, say, packaged spreads such as jam, will also lose demand as there are cheaper local alternatives. These goods and services are elastic in demand.
But consider public transport. Commuters do not stop using them merely because the price has jumped since it is a service that they could not go without for long. They either have to stop going places that are not within walking distance or buy a car. But no one has a problem foregoing a bottle of champagne, thus bad news for liquor stores.
Inflation provides the incentive to look for alternative ways to save money. The worst thing one can do is consume away on dining out or buying that sixth jacket. Much more preferably for modest savers is to invest in a business that specialises in essential goods and services – the sort that people will not stop consuming because it is more expensive than it used to be some time ago.
PUBLISHED ON Jul 18,2021 [ VOL 22 , NO 1107]
Radar | Oct 31,2020
Fortune News | Feb 19,2022
Commentaries | Oct 19,2019
Fortune News | Dec 21,2019
Editorial | Sep 11,2020
Fortune News | Oct 11,2020
Verbatim | May 15,2021
Agenda | Sep 06,2020
Fortune News | Jan 26,2019
Fortune News | Oct 03,2020
Photo Gallery | 53206 Views | May 06,2019
Fortune News | 46043 Views | Jul 18,2020
Photo Gallery | 44964 Views | Apr 26,2019
Fortune News | 44804 Views | Sep 01,2021
Commentaries | Jul 02,2022
Life Matters | Jul 02,2022
My Opinion | Jul 02,2022
Sunday with Eden | Jul 02,2022
Agenda | Jul 02,2022
Editorial | Jul 02,2022
July 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...
November 27 , 2021
Against my will, I have witnessed the most terrible defeat of reason and the most sa...
November 13 , 2021
Plans and reality do not always gel. They rarely do in a fast-moving world. Every act...
October 16 , 2021 . By HAWI DADHI
Residing in a country with no capital market, an organised marketplace for trading se...
The pandemic, armed conflicts and natural disasters have again brought the importance...
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 tw...
July 2 , 2022
After nearly two years since the civil war broke out in northern Ethiopia, adversarie...
June 25 , 2022
It is not the best of times to be in charge of governance in Ethiopia, whether at the...
June 18 , 2022
Some of Ethiopia's economic policymakers may take solace from realising that inflatio...
June 11 , 2022
The stereotype many people have of parliamentarians is as clueless seat fillers who exist to rubber stamp legislative bi...
PM Abiy Ahmed (PhD) at a Gala Dinner Called for the Awarding of the Félix Houphouët-Boigny Peace Prize
May 6 , 2019
A couple of years ago, I was having a conversation with a friend and mentor who has...
The advertising industry in Ethiopia has come a long way. They are not only getting better and more creat...
In an economy that has slowed, where consumers are hammered by inflation, and the private sector is teetering on edge, one industry has a br...
July 2 , 2022 . By TSION HAILEMICHAEL
Getu Gelete has struck a deal to acquire a 40pc stake in Habesha Cement S.C., buying out Pretoria Portlan...
July 2 , 2022 . By BERSABEH GEBRE
Lake Ayalew, minister of Revenues, moved to address complaints about inflationary distortions on capital...
July 2 , 2022 . By BERSABEH GEBRE
The federal government is set to roll out a single-account treasury system for the coming budget year, co...
Or see contact page