Artificially, Slightly Improving Macroeconomy




There seems to be an improvement on the macroeconomic side. The Ethiopian New Year was not greeted with the same rise in costs that the previous two holidays suffered from. Although poultry products had shown an increase in price, cattle have become cheaper.

Inflation for August has been similarly generous to consumers, dropping by 0.6pc to 13.4pc from the previous month. Food prices declined by a similar proportion.

The relative decline in inflation, debt restructuring agreements with China, new grants and the milder gap between the official and black market exchange rates give a less grim picture of the macroeconomic situation. But none of this can be said to last long.

The lower cost of living can be attributed to the relatively calm political situation in the country bar perhaps the past week. Some of the leading theories are that the past holidays have not seen much cattle sold, thus traders have excess this time around, which they are eager to get off their hands soon.

There is also the fact that the harvest season is approaching and new supplies could dampen prices, giving producers and traders an incentive to trade at lower prices. But there are no indications that this fall in prices is bound to be sustained. Just another temporary dip that will in time rise again.

It is not just inflation. The thinner gap between the black market and the official one will not be sustained for long. The parallel market operates on speculation, and the speculators are seeing that more foreign currency is being injected into the economy. They have also noticed that relative political stability has led the business community to anticipate that it is, for the time being, alright to keep their wealth denominated in Birr.

They will play along as long as these factors apply. But they will be ready and waiting to strike when the moment comes and their services will be in demand. This will be if the foreign currency shortage gets worse or there is political instability that persuades the business community that the value of the Birr cannot be trusted anymore. History suggests that one of these is bound to happen soon.

Foreign assistance should also be looked at contextually. The current decisions by the incumbents are the sort that would have made international institutions and powerful coalitions happy.

The decisions to partially privatise major state enterprises and engage in more liberal monetary policies that are being undertaken by Prime Minister Abiy Ahmed’s (PhD) administration are to the liking of Bretton Woods institutions. The rapprochement with Eritrea is a highly valued development for the Saudi-UAE coalition in the Middle East. It should not be surprising that some cash is forthcoming from such sources.

It is thus imperative not to lose sight that the significant problems that led to this unease are still well and alive. The slight improvement is artificial and can deteriorate anytime.

The business community is still on edge, people are still much less likely to spend on large items and productivity is low. The major constraints on the economy, such as the regressive monetary policies, the slow and disengaged bureaucracy, poor infrastructure, low-skilled human power and fragmented supply chains, are still there.

Politicians are known to be dazzled with numbers. That is because statistics are a simple way of generalising the nation’s economic outlook. Politicians look where the public is looking, which more often than not is the surface and not the devil that may lie just under the surface.

It should be incumbent upon this administration to know that the old ways of doing business are not sustainable. As economies grow and transform, there is a need for policies and strategies to improve jointly. The amount of focus that the economy is being afforded, though understandable given the political malaise in the country, is worrying.

The small improvements here and there should only serve as encouragements. The major overhaul of the economy requires to be sustainable and competitive remains unaddressed. Developing a strategy considering this should be a task that begins sooner than later.

 



By Christian Tesfaye (christian.tesfaye@addisfortune.net)
Christian is Fortune’sOp-Ed Editor whose interests run amok in the directions of both print and audiovisual storytelling.

Published on Sep 15,2018 [ Vol 19 ,No 959]


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