Hailemariam Desalegn has had his first encounter, since he was installed by his party to serve as Prime Minister, both with members of the private sector and the press, during subsequent days of last week. On both occasions, the issue of macroeconomic relevance and his administration’s recent move to probe alleged corruption dominated the conversations, while the issues of the Nile waters claimed prominence during the press conference.
The soft-spoken chief executive showed that he has a good grasp on all of the issues raised, while appearing to have limitations in his mastery of the details. Here are excerpts from the press conference.
Q: How is the performance of the economy, in comparison to the plans outlined in the Growth & Transformation Plan (GTP)?
PM Hailemariam Desalegn: The performance of the GTP, in 2012/13, in general, is going well. Agriculture is the backbone and major source of our economy’s growth. The data from the Central Statistics Agency (CSA) shows that growth of the crop production sub-sector, in this fiscal year, is close to six percent. Beyond that, irrigation, livestock and forest development are not yet included in the calculation. Thus, if all of these are to be added up, we expect that the growth of the agriculture sector, during the ending fiscal year, will be better. The final result for the economy will be released by the coming October or November.
Q: The performance of the agriculture sector, last year, was lower than the planned target. What is your expectation for the coming year?
After we evaluated our performance at our latest [EPRDF] convention, we have been putting all our efforts into improving the performance of the agriculture sector. We are distributing a sufficient amount of fertiliser to each of the kebeles across the nation. There are different modalities for improved seeds distribution. Some of it is distributed through improved seeds supply and there is an exchange system within the farming community, too, whereby farmers exchange seeds between themselves.
Q: Although government says that the budget deficit is small, it is often mentioned that the borrowings of the state enterprises ought to be included in the calculation. The consolidated budget deficit remains significant. Some claim that this is reducing credit to the private sector and fuelling the inflation. What is the plan of the government to manage this expanding consolidated fiscal deficit?
Our growth is visible and undeniable. Even those who used to claim against that have now started to write about it affirmatively. It is good that we come to agree on the rate of growth that the nation is witnessing. Yet, there are areas where differences exist, such as what constitutes a budget.
Public enterprises are not budgetary institutions. They are, rather, profitable enterprises; they survive like other profitable entities and finance themselves in their own way. Hence, they could not be included within the consolidated budget of the nation. The consolidated budget is based on a fiscal policy. This understanding emanates from an ideology that claims that public enterprises should not exist.
But, when it comes to actual fiscal deficit, it always remains below two percent of the GDP. It has never been inflationary and it never will be.
The public investment is largely directed towards the infrastructure sector, which is vital to enhance the competitiveness of the nation’s trade. We have managed to control the inflation without a change in the public investment. Inflation has now subsided to 6.3pc. We have successfully implemented instruments that can control inflation without affecting our growth.
That is what we have shown to those who were saying otherwise. We have indeed surprised them. Even the International Monetary Fund (IMF) is surprised, because this is not possible according to their worldview. What we have been arguing is that this is possible. There is practical experience in doing this in East Asian countries. Yet, the debate might continue. Inarguably, it is difficult to realise consistent economic growth under an inflationary pressure.
Q: The trade deficit of the nation is widening and the exchange rate of Birr against major currencies is depreciating fast, wherein the official exchange rate of Birr to Dollar stands closer to 19 Br (the parallel rate being even higher). The foreign direct investment stock of the nation also continues to decline. These all show that there is a deficit in foreign exchange reserve of the nation. Why is the government not willing to accept that there is a shortage in foreign exchange and take measures accordingly?
It is obvious that we run a trade deficit, which links to the generation of foreign exchange. But, running trade deficit is typical in developing countries. Foreign exchange generation through export earnings often lags behind their import expenditure demand. This relates to their rapid economic growth, especially during their transition phase.
In our case, 90pc of our import involves capital goods. This is essential for our growth. Of course, with time, the deficit ought to be narrowed. That is why we focus on the promotion of manufacturing goods exports, as opposed to traditional agricultural goods, on the basis of our comparative advantage.
For example, if close to 20 textile factories could be opened, each earning 50 million dollars in revenue from export (some of the existing ones earn over 70 million dollars), we could earn about one billion dollars. The current earning from the sector is about 160 million dollars. Thus, attracting more FDI in the sectors where we have a comparative advantage is one area that we focus on, in order to reduce trade deficit.
We also believe that we have huge potential to improve our export earnings by improving investment in modern and mechanised agriculture. One potential area is flowers, horticulture and fruits. We think that there is a huge market potential for these products. Reducing the trade deficit will require us to attract more FDI, on the basis of our competitive and comparative advantages. Although this is a problem that will stay with us in the near future, we ought to work to narrow it down.
The plan on the depreciation of our currency is to limit it between five and seven percent. The performance of the last three years has been below the plan. Of course, the depreciation of the currency will continue. We cannot stop it and we will not stop it. This is because it helps our export competitiveness. Hence, the depreciation would continue in a manageable way, within the limits set, without affecting the stability of our macro-economy. We will be doing this, however, in a way that is sufficiently balanced with the targets for the inflation.
Q: Foreign Ministers of Egypt and Ethiopia, after their latest discussion in Addis Abeba, have released a statement saying that they have come to an agreement to work together. How much is this consistent with the disclosure of the report by the International Panel of Experts (IPoE)? How sustainable will the agreement be in the context that Egypt has taken a different stance at the recent meeting of the Nile Basin Initiative (NBI) held in South Sudan?
The experts involved in the IoPE are engineers, economists and social anthropologists. Their report is solely technical. They do not have the mandate to give political or diplomatic comments. Their technical report rightly shows that the construction of the GERD is beneficial to all riparian nations. Their conclusion were clear.
Yet, they have presented their own recommendations, which ought to be considered in the future design works of the dam. These recommendations are in line with the nature of the turnkey contract of engineering, procurement and contract (EPC). Our agreement, then, involves how the recommendations could be integrated in the construction of the dam.
The environmental Impact Assessment (EIA) was done using the available information since Sudan and Egypt did not provide the necessary information. The latest agreement, therefore, involves furthering the study, using all available data, but does not relate to the design of the Dam.
The problem is not on the technical issues; rather, it originates from the Egyptian view that the agreements of the 19th century ought to be respected. These agreements deny upper riparian nations the opportunity to use the Nile waters. This is wrong.
Maintaining the level of the water at its previous level is not under anyone’s control, as there is the force of climate change. Environmental deterioration will also have its own impact. Yweri Musveni, president of Uganda, said that if nations are not able to generate electricity, their people would go to cutting trees. This would eventually affect the flow of rivers. The ability to control not even a drop of water to be lost is unrealistic.
The experts have even identified that there is every possibility for enhancing the flow, if the riparian nations could cooperate towards fair use of the water. I think the Egyptians need to open their minds to the fair use of the waters. We will, therefore, continue our diplomatic and political efforts towards mutual understanding. Yet, it ought to be known that the construction of the GERD will not stop and its size will not be reduced.
Q: Measures against those suspected of corruption seem to be decelerating. There is fear in the public that the deceleration of these measures might plunge even further. What is the plan going forward?
The fight against corruption is not a hide and seek game; it ought to rather be based on studies and in a way that brings about fundamental changes. Thus, we will continue to do our job with due preparation. We have identified major junctures of corruption.
One area is land administration. We have created a system that helps our fight against corruption. We have also prosecuted those who are found to be guilty of wrong doings. We have succeeded in this. The other juncture is revenue collection and tax administration. We have taken measures, which includes prosecuting higher government officials and corrupt businesspeople, in a way that cleans the whole system. But, it will not end with jailing higher officials. Rather, it ought to be done in a way that improves the whole system of revenues collection and tax administration.
The sustainable way is to reform the whole system in a way that closes every opportunity of becoming corrupt. We, therefore, should not narrow the issue of fighting corruption to jailing people. It is just one part.
The third juncture is public procurement. This is a nation where huge public contracts and procurements are made. Hence, this is one juncture that we will be taking measures on the basis of studies. A similar action, based on studies, will be taken on corruption involving the business sector that practices oligopoly. Taking measures is just one part of the fight. There is no slowdown.
Q:There is a feeling that the crackdown was sudden, not based on studies and motivated by internal political dynamics. What is your take on this?
If there is anyone saying that the action is politically motivated, it comes from people that are associated to the corrupt. And, they have every reason to denounce the action.
Q: Ethiopia is currently producing large numbers of skilled manpower. This year alone, many students are expected to graduate from universities. But, the government is not creating enough job opportunities for the graduates.
Hundreds of thousands of students are graduating from universities and technical colleges. This is a big achievement for the government, because any development programme in a country depends on the availability of its human capital. The development activity in Ethiopia is accelerating rapidly. We need a large volume of skilled manpower to perform projects, such as railway, hydropower dams and roads. These projects are creating huge job opportunities.
Above all, however, in any country including the United States, 60pc of the economy depends on micro and small businesses. Seventy percent of Japan’s economy also depends on these. Our situation is no different; we need to establish more micro and small enterprises.
Q: The achievement of the manufacturing sector is far from what the government had planned for the last three years. Can we say that the country will manage to achieve the target in the remaining two years?
Currently, industry contributes close to 16pc of the GDP to the economy. But, it has to contribute more than this and it is progressing. The textile, leather, chemicals and food and beverage sectors can make the country competitive in the international market and generate employment. Domestic investors should participate in these sectors, which are dominated by foreigners. Most local investors are engaged in the service and trade sectors. It will require a lot for the government to transfer these local investors to the manufacturing sector.
Q: The real estate sector has been riddled with delivery problems. Many people have lost their savings. How can the government intervene to save them from their losses?
Many people did not accept it when we said repeatedly the sector is exposed to rent seeking. The situation could have been very different had the sector been manufacturing. The sector operates based on contracts between developers and their clients. The latter should look into the kind of contract they have entered into and seek legal recourse. The government cannot intervene in this and look into every contract, because doing so would be violating the rights of individuals and institutions.
However, the government has a responsibility to intervene should the issues reach national crisis levels. , it should be done so based on the law, and not simply because the government believes it has the power to do so. The relevant ministries are studying the matter.
The administration will see the revision of a little known proclamation, issued in March 1998 on capital goods leasing business. The Ministry of Trade is mandated by law to issue licenses to operators of capital goods, who shall not own the property during its lease period. Having three parts and 19 provisions, this proclamation was designed to offer financing to acquire machineries without the operators owning it, until such time that all the debts are paid out to the financier, while no collateral is required from the operator. Nonetheless, hardly used, the administration wants to improve this proclamation, in order for it to become more relevant to small and medium companies, which have mushroomed over the past few years.
Following the controversy in Parliament over findings by the General Auditor’s Office of billions of Birr unaccounted by the Ministry of Defence, the delicate balance of keeping the nature of expenditures by the military and intelligence establishment confidential, while at the same time holding its leaders accountable for appropriate and legitimate use of public funds, has come to the public’s attention. The administration is now writing a bill to shelter these agencies from a regular audit oversight, which offers them some degree of confidentiality, while devising a way to expose them to audits without public exposures on the nature of sensitive spending. The bill is expected to pass the Parliamentary floor during the next budget year.
Leaders of the administration have always been unhappy with the way the government conducts its business of winning minds and souls of the Ethiopian public. There has always been a public admission that the administration’s bid in the field of communications is rather weak. Despite the formation of a high level communications team, chaired by the Prime Minister himself, modelled on the labour government of Tony Blair in the UK, the dissatisfaction nonetheless remain potent. In the same fashion, the EPRDFites have policy and strategic documents on foreign policy, agriculture and industry, they are now set to write a new document on communications strategy. In the absence of Meles Zenawi, their former chairman and author of all the other documents, it is interesting to see who the brainpower in their camp will be to produce such a strategy paper.
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