The economic challenges facing the new Premier

12 Apr 2018

Despite its astonishing and successive economic growth, Ethiopia still faces a lot of economic challenges. During his acceptance speech last week, the country’s new Prime Minister, Dr. Abiy Ahmed spotlighted on economic issues, and on ensuring economic growth for the people of Ethiopia, next to the main event issues - peace and stability, widening up political space, national consensus, justice, democracy and so on. 

Over the past couple of years, the main economic challenges the country has been facing include inflation, rising foreign exchange rate, forex shortage due to the fact that foreign trade has not grown at the desired level, increasing burden of foreign debt, increasing disparity between domestic saving and investment, corruption, among others. These have in turn have impacts on the lives of the people.
Accordingly, the premier noted that in order to overcome these and other challenges, the government would work to sustain the rapid economic growth by assessing the two and half year implementation of the second Growth and Transformation Plan, and take the necessary policy adjustments in a bid to overcome the aforementioned challenges. Some scholars hold a belief that these statements of the newly elected premier would encourage the people and the market.
As to Dr. Birhanu Deno, economic lecturer at Addis Ababa University, who recently gave his comments to the Ethiopian Press Agency, the Prime Minister’s statements regarding the economy are timely and appropriate. The reason, according to him, is obvious as the country is facing foreign currency shortage because of deficit in its exports. This can be attributed to inability to produce exportable commodities that meet international quality. Focusing on export quantity rather than quality has hindered the competitiveness of Ethiopian commodities in the international market.
In order to solve the foreign currency shortage, it is important to be competitive in terms of price, and improve supply, both in quality and quantity, the scholar advised. As imported industrial inputs, such as machineries and other products, would have huge negative impact on the economy, it is important to replace them with products produced locally (in the long run).
As to the scholar, though it is not widely discussed, there is an increasing inflation which creating huge pressure on the day to day lives of the society, especially on low-income households. As it is impossible to readjust and control the situation, the best possible solution would be to increase production in terms of quantity. For instance, it is vital to increase agricultural land and introduce modern technologies so that farmers increase production and productivity.
Similarly, in order to prevent social crisis that is triggered by soaring inflation, he noted, it is important the government starts to subsidize basic commodities. He argues that before the new Premier formulates policies to overcome the economic challenges, it is imperative to prepare well to take actions based on researches and studies. Whatever the case, he indicated, it should not take a very long time.
Dr. Birhanu also argued this alone would not bring about the desired outcome in economics, as issues of justice, democracy, corruption and other issues would have their own impact on the overall economic growth. Hence, the Prime Minister has to create suitable condition for the youth, women, and members of the Diaspora to contribute their share for the peace and economic development of the country. In this regard, the Premier needs to start to come good on his promises swiftly.
The strong desire the Premier showed to maintain peace and democracy would have its own positive effect on the economy, added Dr. Birhanu. But this will have to be materialized as the economy would continue to become resilient when good governance is ensured, women’s economic role and benefit increases, youth innovation expands and justice prevails.
Dr. Birhanu also suggests solutions to solve forex shortage. The first measure according to him is to increase local production as well as product quality and diversity. Second, as the import-export business should not be monopolized by few individuals, other importers and exports should take part in the business in a competitive manner. And thirdly, controlling contraband. For instance, it is known that coffee and livestock are imported illegally. Hence, strict controlling mechanism has to be introduced as the foreign currency that is lost through such illegal trade would be used to improve lives.
The scholar also disclosed his belief that it is imperative to identify and ban importation of luxurious commodities that do not add value to the economy. For instance, it is possible to restrict the number of luxuries cars imported into the country while encouraging and giving incentives to sectors like tourism that generate more foreign currency.
Dr Aregaye Waketola, Vice President of Agriculture Professionals Association, for his part expressed his satisfaction with part of the Premier’s speech that focused on the agriculture sector.
According to him, it is important to allow farmers to trade as per the market. Though farmers have the willingness to adopt and use technologies that increase production and productivity, they could not do so as the price of such technologies are expensive. Thus, the government has to subsidize these technologies so that the farmers’ willingness to use technologies would not diminish.
“For me, the foreign push that the government should leave everything for the market and not intervene is not sound,” said Dr. Aregaye. It is impossible in developing countries like Ethiopia for the government not to entirely intervene in the market. This is because; the government has to intervene to control inflation and stabilize the high cost of living on low income households. Hence, the public and farmers should stand together with the new Prime Minister and his cabinet while they try to implement their plan.
According to studies, Ethiopia’s agriculture has the capacity to feed more than 300 million people. If farmers access scientific and technological support from the government, and if strong natural conservation activities are carried out, the Premier indicated that, it would be possible to significantly improve the contribution of agriculture to the economy.

BY ABIY HAILU

 

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