They finally did it. There was speculation, and there were some legitimate reasons, but it still came as a shocker when the central bank eventually went ahead with the devaluation.
The fateful day was October 10. National Bank of Ethiopia’s (NBE) Vice President, Yohannes Ayalew (PhD), called up the state’s lackeys to announce that 23 Br would no longer fetch a dollar, but 26.9 of them would do.
Of course, he had a reason. There is the trade deficit, which is mostly believed to be a result of low export earnings. Imports are sky-high and will continue to enlarge if the International Monetary Fund’s (IMF) estimates and civilians’ mild aversion towards locally produced goods are anything to go by.
Despite the pros of the devaluation, which many pundits believe are figments of hackneyed macroeconomic advisors’ imagination, all eyes turned to inflation.
History is a good teacher, and it reads that there will indeed be an increase in the price of goods and services. It barely matters that the deposit interest rate has been bumped up by two percentage points, because the last person I encountered who saved his money in a bank to profit from interest, as opposed to just keeping it safe, was, well, a figment of my imagination.
I expected an increase in prices on October 12, but the market was calm. Retailers, who previously only needed a whiff that public servants would get a salary increment to hike their items’ prices, remained mostly unperturbed. There were, of course, those here and there that hoarded their products while they determined to adjust, or not, their prices. But for the most part, life just went on.
Still, lest we forget, inflation is conniving. Much like a stroke, the symptoms, like numbness in the face, or higher steel prices in inflation’s case, are almost negligible. It should not be forgotten that the last time there was a devaluation, in 2010, the ensuing month saw a reduction in inflation. But a few months down the line, it was close to 40pc.
This is bad news for, more than anyone else, consumers. Retailers are just a conduit; price increments do not really affect them. All they have to do is maintain their profit margin and pass the burden on to consumers.
And the consumer does not have friends. Though some would prefer to see a continuation of the status quo when it comes to the foreign exchange regime, even if the Birr remains overvalued – asserting that it would be stabilised by means of an astute fiscal policy – detractors advise liberalising the forex regime.
Floating the currency would be good for the country. It would allow the economy to be dictated by market forces, much like that of the United States (US) or Kenya. Sure, both countries have a much more stable economy, but floating would allow competition and minimise high currency fluctuation in the long run. But, emphasis on “the long run” , as a floated exchange rate would bring about a depreciation of the Birr, yet another economic brunt on today’s consumer.
Who is to blame?
A generation either inherits debt or fortune from its forefathers. In Ethiopia’s case, the past generation, much like the generation that followed, was, let us say, work-shy. They may have saved the country from colonialism, which is commendable, but they also left it with a puny economy. The government may complain that exports are uncompetitive because of prices, but the cause really is unproductivity.
Prices are indeed a problem, but almost everyone I know would not own a Samsung or an iPhone if high prices were as export repellent as supporters of the devaluation would have us believe. There is a reluctance to say what everyone believes is the problem – Ethiopians are not productive enough to produce for local demand (as witness the sugar imports) let alone for exports. If it were not for aids, remittances and China, the trade deficit would have been a household name.
Lack of exports is a symptom of the deficiency of an environment that allows competition and thus innovation. Consumers are also producers – the problem is a collective one. There is a state that is developmental and fails to understand that society is but a means to the individual. But, we have had such governments for the past century. No one else could be blamed for this except for society, one that gives great respect to authority and fears novelty.
There is no reason that change should not come from the bottom up. The journey may be arduous, and at the end of the day, even unfruitful for some, there is no choice but to produce, and produce smartly. Work shall set you free goes the saying and it will, but the current generation may not reap the benefits. Today’s consumers are losers, but there is no reason tomorrow’s should be too.
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