Interview on current
developments–
Political-Economic
underpinnings for the
Popular Protests
in Ethiopia
Addis Abeba, 30 August 2018
Costantinos Berhutesfa Costantinos
Former Senior Policy Adviser to the UN in
New York and Chairperson Anti-Corruption Board, AU
ENA
After three years of unprecedented wave of anti-government protest,
Ethiopia has been under a reform, how do you evaluate it from the economic and
political perspective?
Costantinos
The past three years have been one of the saddest sojourn in
Ethiopia’ recent history. Hundreds lost their lives; millions were displaced
and the economic cost of destruction of economic assets and the disruption of
market forces is unforgivable. So far,
his political openness to invite every opposition to the political platform,
release of political prisoners, opening up the economy and peace initiative
with Eritrea that has reverberated in the entire Horn of Africa, are phenomenal
achievements. Nevertheless, the recent escalation of ethnic violence are
threats that must checked.
The birth of a ‘visionary’ in the wombs of the ‘revolutionaries’
has brought a new PM in a rare exercise of inter-party democracy. PM Abiy has
captured citizen’s attention with a brand of ‘Ethiopianess’ ‘love’, ‘peace’
and ‘reconciliation’ but any notion
to treat him as vanilla office-bearer would be derisory. The entire ‘Abiy’ phenomenon resonating from both
Ethiopian hamlets and the Diasporas’ megacities has nothing to do with dogma,
nor does it have anything to do with party creed, either; except in its
historic role as incubator of the threat to national stability.
ENA
Many argue that economic marginalization and unfair distribution of
wealth have been a major source of public grievance. What is your understanding
in this regard?
Costantinos
Today,
PM Abiy Ahmed inherits a spectacular economic and infrastructure growth,
hundreds of thousands of students graduating yearly from vocational schools,
universities, and an increase in life expectancy in a decade, while meeting the
MDGs. Nevertheless, because of the perturbed populace Abiy has now emerged to transform the security situation almost after
his historic speech focussed on Ethiopianness
and the need to act together as citizens of a political society.
There is no denying that
there is unfair distribution of wealth. Because of the
wastefulness in macro-economic management, corruption and looting of state
finances, an unbanked populace and suppressed private sector that could have
provided entrepreneurial resources and employment to the multitude of youth, it
has turned the populace, violent. The Gini index measures the extent to
which the distribution of income or consumption expenditure among individuals
or households within an economy deviates from a perfectly equal distribution.
I do believe that financial intermediation
is in a rudimentary state, limited, as it where, to banking institutions,
imposing serious constraints on investment for long-term economic growth, an
improvement of which is one of the preconditions for the GTP to meet its goals.
Financial intermediaries stimulate technological innovation and enhance
economic growth and development - mobilisation of financial resources for
research and development are a case in point. Financial deepening is designed
to measure the services provided by financial intermediaries.
A Gini coefficient of zero expresses perfect equality; a Gini
coefficient of 1 (or 100%. It expresses maximal inequality among values).
While, the co-efficient for Ethiopia stands at 39.1% according to the FRED Economic Data derived from World Bank statistics;
nonetheless, imprudent devaluation has pauperised the working class citizenry
and curtailed the emergence of a vibrant middle class.
According to media
reports of the submission by the Auditor
General to the House of
Representatives, billions have been unaccounted for, in this year’s
national audit. Corruption, looting state coffers and illicit financial flows are the enduring
fountain of unfair
distribution of wealth and of all profligate prodigality in
state revenue dispensation and
of all economic disorder. It heaps
the economy billions in liability; it takes away dynamism from citizens’
mission, astuteness from the coordinates of the state, and every shadow of
authority from the mother of all laws, the constitution.
ENA
It is believed that political reforms are essential for the
implementation and sustainability of the economic change, so what is your
suggestion to the leadership of PM Dr. Abiy Amhed?
Costantinos
Several areas of reforms that will
indubitably be political for the ruling party concerning the mission of the
state, the participation of entrepreneurs, responsible opening the economy
including the fate of public and political party businesses and transformation
of the financial sector.
Government corporate plans, if well designed can provide the
basis for establishing the ‘core activities’ of the state. An in depth
re-evaluation of its core mission leading to policies for right-sizing the
state; redeploying resources to high priority activities; and professional
reassessment of its comparative advantage vis-à-vis other providers of
services, in a way that advance and nurture business confidence is long
overdue. This is influenced profoundly by meritocracy and level of competence
in economic management, the efficiency and effectiveness of the bureaucracy,
the attitudes of leaders towards private enterprises and the quality of
infrastructure and services. Consistencies in credit policy and practice are
indicators of how the framework of state-business relations develops or falls
short of effective or strategic direction that require
Development
of politically assertive civil society-
Participatory
policy & strategy development
- Liberalisation of State Owned Enterprises (SoEs)
- Initial Public Offerings (IPOs) in internationally & domestically and
competent Government Regulation
-
Public
governance and administration refinement
-
Cabinet
think tank to support the Prime Minister
The Kitchen
Cabinet was a mocking term applied to an official circle of
advisers to US President Andrew Jackson. The power in his administration rested
with a circle of advisers who often did not hold official office. A group of
unofficial advisers to the head of a government. The term has endured through
many decades, and now generally refers to a politician's informal circle of
advisers. In modern usage, the kitchen cabinet has generally lost the
suggestion of impropriety.
Modern leaders are expected to rely on a wide range of
individuals for advice, and the idea that unofficial
persons would be advising the head of government is not seen as improper, as it
had been in Jackson's time. Such a cabinet think group will employ New Public Management techniques and
practices drawn mainly from the private sector, is increasingly seen as a
global phenomenon. Such reforms shift the emphasis from traditional public
administration to public management.
The Academia’s essential
task augurs on think tanks
that continually remodel, expand, advance, renovate, cultivate and develop
mighty economies even when their models are doing well. Their brand of
enterprise appears to have something going for it—so it may seem ill natured,
or outright wicked, to wonder how much better such nations might do if their
think tanks really tried hard. Independent
private sector think tanks that execute highly qualified research and
policy reflection are indispensable elements for partaking in modernity and
globalisation.
ENA
IMF recently predicted that Ethiopia becomes the fastest growing
country in Africa registering an 8.5 economic growth in 2018, what does this
mean for Ethiopia’s economy?
Costantinos
According to International Finance
Institutions (IFIs), Ethiopia’s economy will attain a healthy growth. What this
means is it can provide opportunities to integrate investment and aid with a
strong economy to finance development within.
A
World Bank Memorandum asserts that ‘the poverty-focused development strategy
has registered some notable success. Nonetheless, in effect, Ethiopia’s growth
potential is yet to be marshalled, mired by self-reinforcing dynamics locking
the country in low growth equilibrium. Recently, it has faced turbulent economic environment stemming
from surging import prices that have contributed to a jump in inflation. The
uphill struggle is accommodating higher capital outlays and tightening the
fiscal stance’. The Growth and
Transformation Plan policy objective emphasizes macroeconomic stability
based on a case scenario of an average annual growth rate of 10%, whose prudent
implementation, accompanied by reform measures, will provide a sound economic milieu
for growth.
Multilateral support provided (the exogenous shocks facility and
IMF’s Special Drawing Rights) and FDI will further boost assurance in the stability
of the economy. Kindling ‘The Growth’ and
priming ‘The Structural Transformation’ will in effect involve unbolting self-fortifying
policy and practice mechanisms that demand for a synchronised
change in the composition and the level of public-private investment. These
can be achieved by creating better functioning and broader markets that will pivot on availability of capital stock through
credit and capital markets and suitable investment climate; thereby increasing the
rate of return on investment, attracting meaningful FDI.
ENA
Do you think the government needs re-evaluate or review its economic
policy?
Costantinos
Economic
and social governance must focus on policy regimes that enhance people’s capacity
to achieve sustainable livelihoods. This entails new initiatives in liberalisation
of the economy and promotion of entrepreneurship,
the private sector and investment; based on finance reform and divesting
commercial ventures not in the public interest. Job creation comes from a strong economy and a fiscally responsible government. It must assemble a civil service
with appointments based on merit, appropriate reward and career development and
subject officials to the accountability and rule of law to kill systems that
reward failure. An efficient and a
development-oriented private sector provide the nourishment, which these
markets require to grow and function effectively. The markets themselves
provide the credit ingredients, which the private sector requires to grow, expand
and contribute to development.
ENA
Ethiopian government has planned to liberalise
the State Owned Enterprises (SoEs), what does mean it to Ethiopia’s economy and
national interest?
Costantinos
Certainly. Eloquent testimony to the
complexity of demanding economic development is provided by the list of advanced
economies that have degenerated into fractured states in Europe because of
state meddling and political machinations of populist parties, demanding
international bailouts.
Since PM Abiy proclaimed the liberalisation initiative, I have observed
the debate in the media. It has evoked sharp political reactions covering a
great range of ideas and policies, varying from the eminently reasonable to the
wildly impractical. Yet, liberalisation has unambiguous political origins and
objectives. It emerges from the move against growth of big government and
represents the most serious effort to formulate a positive alternative as in
the Washington Consensus. Hence, it has become a central element of the
structural reform agenda to divest State Owned Enterprises (SOEs). The reasons
for the rise are the poor performance of SOEs; proving wasteful, inefficient
and costly. These high SOE losses are covered with fiscal transfers by the
state to finance larger fiscal deficits and increase tax revenues or, more
commonly, reduces public expenditures in other areas, or both. The financing of
their losses through the state banking system increased intermediation costs,
reduced the private sector’s access to credit, and threatened overall financial
sector viability.
Increasingly constrained states also became incapable of
providing capital to SOEs for maintenance and repair, much less badly needed
network expansion and re-tooling. Hence, the numerous attempts to reform SOEs
by imposing hard budget constraints, exposing them to competition and crafting
institutional changes produced meagre results.
The relevance of liberalisation must not be assessed only by
looking at the revenue the state generates from its proceeds, although the
macroeconomic perspective is important. Liberalisation is meant to achieve a
much broader and fundamental component in the improvement of microeconomic
efficiency with explicit objectives to
- achieve higher allocative and productive
efficiency - has a normative rationale and relate to the microeconomic perspective
to increase in aggregate surplus by increasing output and lowering prices
(allocative efficiency) as well as
through a more efficient use of resources within the firm (productive
efficiency);
- strengthen the role of the private sector in the
economy - has a normative rationale and relate to the microeconomic perspective
-- the creation of well-functioning markets and an investor-friendly
environment in the economy; and
- improve the public sector's financial health and
to free resources for allocation in other important areas related to social
policy and public sector finance, the reduction of borrowing requirements and
the potential reallocation of expenditure towards social policy areas;
ENA
We are preparing to receive a new Ethiopian year (2011). What kind of
economic reform and political achievement you expect?
Costantinos
I do believe that financial
intermediation is in a rudimentary state, limited, as it where, to banking
institutions, imposing serious constraints on investment for long-term economic
growth, an improvement of which is one of the critical preconditions for the
GTP to meet its goals. Besides the mobilisation
of savings, intermediation transfers savings from surplus to deficit sectors
and by doing so enhances new investments and accelerate the rate of
socio-economic growth. With the internationalisation of stock exchange
dealings, foreign investors can buy shares and stock without visiting Ethiopia,
where the inflow of foreign investible funds increases the investment resources
available and facilitate debt conversion schemes where the debt overhang has
become legendary. The impersonal nature of stock exchange transactions implies
that investors can buy and sell their securities without interference, defined
in a conceptual framework.
Banks are not the only financial intermediaries. There are
non-bank financial intermediaries whose role is to mobilise money from those
who have it (the savers) including the idle balances with the banks and make it
available (lend it) to borrowers. However, unlike the non-bank financial
institutions, which must first mobilise the money in order to lend, the banks
can create credit autonomously by increasing their liabilities in favour of
borrowers. This has been made possible because of the ability of the bank to
create credit or money through overdrafts and loans which when repaid would
have increased the amount of money available for further lending by the banks.
As economic activities increase and the economy becomes more and
more monetised, financial, albeit money and capital markets, emerge and a
direct link is established between savings/savers and investment/investors. The
financial system, therefore, comprises savers and borrowers; bank; non-bank
financial institutions such as insurance companies, mutual funds, pension
funds, investment trust companies, building societies and unit trusts; and
capital markets (for primary and secondary securities) such as stock exchanges.
Financial intermediaries and intermediation stimulate technological innovation
and enhance economic growth and development - mobilisation of financial
resources for research and development are a case in point. Financial deepening
is designed to measure the services provided by financial intermediaries.
Financial depth equals the overall size of the formal financial
intermediary system, that is, the ratio of liquid liabilities to the gross
domestic product. Financial assets are accumulated at a pace faster than the
accumulation of non-financial wealth. It could thus be argued that financial
system that primarily fund private firms tend to provide more financial
services than those that channel credit only to SOEs. If the private sector
volume, value and rapidity of transactions were significantly larger than the
public sector, the ratio of liquidity to GDP would be generally higher. The
concept of financial repression involves essentially controls on financial
variables such as interest and exchange rates to the detriment, some argue, of
financial system and economic growth.
ENA
Would you about your point of view for the reform Ethiopia has made
during 2010 E/C
Costantinos
PM Abiy has risen above the party that
produced him and the concurrence of the avalanche of the multitude of devotees
that no longer care about its Principles.
The ‘mother of all parties’ they fashioned and that had won 100% in the polls
is perceived with refrain by its very followers ‘coerced into membership’ in the quest for wealth and privileged
position in the party, government and society. So far, what he offers the
avalanche of the multitude of devotees are not pecuniary inducements (access to development and humanitarian goods
and services), what he poses is a mind-set, a sensation of simple message
of love and citizenship and an arrogant insolence for the lexicon of the cabal
stalwarts.
PM Abiy’s initiatives in regional peace making, national
reconciliation with parties in and out of Ethiopia are phenomenal tasks
accomplished with his tenure of 100 days. Some of these can be categorised into
the following
- The ‘Ethiopianness
Clarion Call to reconstruct ‘ethnically divided Ethiopia’ under its historical identify
- Touring
the nation’s regions to stabilise internal political reforms;
- Expanding
the democratic space in country;
- Inviting parties in country and abroad to participate in Ethiopian politics;
- Inviting the two million strong Ethiopian diaspora who can cater their skills to highly industrialised nations to participate in Ethiopia’s economic development;
- Setting up
a liberalisation advisory council to advise the government;
- Setting up
an economic advisory team under the National Planning Commission;
- Making
peace with Eritrea that had a domino effect in launching peace initiatives in
South Sudan and among Somalia and Eritrea and offering to mediate between
Djibouti and Eritrea;
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