A Cure to Ethiopia’s Inequality Pain

Motivated civil servants are cornerstones for development of a nation. The economic development of our country is something palpable. The economic and trade policy reform has brought up thousands of investors in different sectors.

Motivated civil servants are cornerstones for development of a nation. The economic development of our country is something palpable. The economic and trade policy reform has brought up thousands of investors in different sectors.

As its fortunes improve, the country is rushing to build new infrastructure – dams, rail systems, skyscrapers, and mobile networks. Twenty years back, there was no a single company who works in road construction, but now we have hundreds. Two decades back, there was no a single registered investor with a capital more than 500,000 Br, but now we have millionaires and even billionaires. Our asphalt road has soared from 9,000km to more than 40,000Km. Our electricity generation potential has increased from about 800Mw to more than three fold.

One effect of the impressive progress is the greater capacity to cope with the cyclic drought (what we have at the moment is one example), preventing the descent into famine conditions that have occurred in the past.

In general, there have been great gains in material well-being in the country; on average, income per person and life expectancy have seen significant improvement over the course of recent decade. Of course, these are not enjoyed by everyone within the country. The massive economic progress of our nation has seen lacking a vision of equitable development, and specially forgets the civil servant. In growth that is not inclusive and leaving behind large number of people, the danger is huge.

Who is benefiting from the economic growth is a much-contested issue in Ethiopia. The marked differences in the extent and nature of inequality across the country demonstrate that inequality in Ethiopia is not just determined by economic forces; it is shaped by politics and policies.

As a capitalist economy, inequality is expected. Some inequality is even conducive for growth and is a sign of liberty. With all the massive economic development, the data from Central Statistics Agency (CSA) shows the average annual inflation ranges from eight percent to 10pc. That is to say a food worth 10 Br, 10 years back, is now priced at 100 Br. Meanwhile, the salary of the civil servant has been lagging behind. On average, in the last 20 years, while the salary of civil servant has increased four to five times, the price of commodity has soared more than 20 times.

“The government does not afford” is the usual excuses coming to the picture when it come to paying the civil servant based on the market. It does not need the mind of a university economist professor to tell us the paradox in this. One friend of mine has framed it, in goods words, as; “in this country, we, the civil servants, are pretending as if we are working and the civil service is also pretending as if they are paying us”. As a mater of fact, few people are shouldering the growth and development of the country. If we do not pay attention and stop pretending, the middle-income country we are dreaming will be coming with social havoc.

Mentioning a personal experience that amused me may help here. Planning to move out of Addis, a friend of mine was looking for a house to rent in Bahir Dar. The same house I have rented six years year back with 2,200 Br per month now costs 6,500 Br per month. As one of relatively well-paid civil servants, a house to live was supposed to be one of the basic things my income will take care of. But I know that 6,500 Br is also what I am being paid as salary.

How I could be able to survive being full-time public servant is a one-million-dollar question. Although the government argues that the suffering is caused by rapidly rising living costs is a transient phenomenon inherent to our developing economies, the emergence of a new economic elites through rent-seeking and clientelism has certainly exacerbated the sense of relative deprivation, particularly among urban poor people.

Much of the wealth inequality observed around the country is associated with rent-seeking, both in the private sector and the public services. We usually tend to blame the merchants for driving the market to instability using their financial power, but what about the big contribution of the policy and state-monopolised business ventures?

As a developmental state, government-owned business sectors are the necessity to buffer immature capitalist economy and most importantly to empower the government. Without going to the detail of the controversies of proving the inefficiencies of the government-owned sole service providers, it can be said that some of the short-sighted polices are fueling the inflation. I will just use two cases; the land and oil price.

One of the most ridiculous changes we have seen in recent years is with the lease price of land, which was supposed to be a publicly-owned resource, according to the Constitution. Just to give it a practical comparison, one of the many stores I have from my dad is “30 years back, a 500 square metres plot of land could be bought with 400 Br”. That was a three month salary for my dad, who was a soldier or half of the monthly salary of a physician.

The cost of the same land in today’s lease system from the government is more than four million Br. Most of us will not forget the land in Merkato offered with a price of 350,000 Br per square meter. It is really absurd economics to understand. The economist will argue that in a healthy housing market, the price of a land must be less than eight percent of the cost of the total building. The lease system in our cities, however, is driving the market out of hand and the land price way more than the total construction cost.

Oil is the other main commodity which needs to be handled with care. The price of oil affects every social strata; a small fluctuation in the market will be felt in every sector. As a result, everywhere in the world, it is usual to see the oil price is either directly or indirectly controlled by the state.

The Ethiopian government used to subsidize it (practically waver the tax), but after the lifting of the subsidy, what we are experiencing is a monthly hoarding, shortage and market uncertainty. The paradox is, oil price increases whenever there is an increase on international market, but it has not shown a decrease as expected when the international market drops.

It may be unrealistic to ask the government to subsidize oil price, but what absolutely is wrong and short sighted is excessive profiting. If we continue mismanaging land and oil price, the long-term consequence is fueling the inflation with economic inefficiency and worsening inequality. And that will usually end up with inequality of opportunity.

The encouraging news is already the government is investing a lot in public goods. Complementing it with performance-based payment system in the public service, investment in expansion of the middle-class, infusing social responsibility into the market system and enacting corrective measures could be key to the country’s future, especially when a common criticism is the sharp disparity between rich and poor. And above all, the economic development was supposed to put people, rather than states, at the center of the growth.


By Wondemagegn E.
Wondemagegn E. is a public health specialist. This commentary was first published on Linkedin Pulse.

Published on Apr 12,2016 [ Vol 16 ,No 832]



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