Tyranny, Debt & Underdevelopment: Ethiopian Rail Corporation’s Debt: How Big Is It? January 31, 2017Posted by OromianEconomist in Illicit financial outflows from Ethiopia.
Tags: Africa, Corruption, Debt, Ethiopia, Ethiopian Rail Corporation’s Debt: How Big Is It?, Tyranny and debt, Tyranny and its myth
The Ethiopian Reporter (ER) newspaper has been presenting shocking facts about extents of corporate bankruptcies. These have escalated particularly since #OromoProtests started in November 2015. Such reports are becoming commonplace so much that we do not even pay much attention to them. We have been reading about a series of scandals related to Sugar Corporation, METC (the Military Engineering Complex), and lately that of the Ethiopian Railway Transport Corporation (ERC).
In this piece, I will briefly comment on the latest scandal, related to ERC’s murky finance. The ER stated quoted ERC management report and presented troubling accounts of the corporation’s escalating debt, currently standing at birr 102.5 billion or USD 4.6 billion. Let’s put this figure in a context – how big is it relative to the size of the Ethiopian economy?
- Birr 1,031 or USD 46, if expressed as debt per person (dividing the figure by population of Ethiopia)
- 7.4% of GDP (expressing it as a ratio to Ethiopia’s national income)
- About 50% of the income generated in the whole of Ethiopia’s industrial sector
- 180% of the whole of Ethiopia’s manufacturing sector (nearly twice the size of total income generated in the manufacturing sector, including small scale handcrafts)
By any stretch of imagination, ERC’s debt is a colossal figure. It is not something that Ethiopians would take as yet another financial scandal regading some corporate entity. At the end of the day, it is Ethiopians who would foot this bill. After all the money does not simply melt away, it must have been pocketed by some group who have been busy siphoning off public money. It is not without reason that the authorities have been so much addicted to mega projects. Such big projects have been convenient mechanisms for embezzlement.
We all recall circumstances through which the Addis Rail was started. A very large construction project was completed, completely revamping the Addis Road Networks. Though expensive, this was necessary. The ring road and the rest were completed. However, Addis residents barely started driving on the new and fresh looking roads when the government came up with some crazy idea – yet another mega project, a gigantic city rail network!
Ironically the rail infrastructure was put in place by digging up the newly build asphalt roads. It was madness. A logical next step would have been a tram rail system, which requires only a minor modification – burying the rails in the asphalt road so that the roads would be shared by trams and other vehicles. That option was not acceptable to the authorities because it was not big enough to generate perpetual business opportunities for their cronies.
Now we witness a rather ridiculous situation. By coincidence, the day the Addis Rail started operating, I was back home. The next day, as I was driving in Addis, I witnessed something sounding a comedy show – only one coach rail was moving up on that ugly structure. Well, in that case, if it is only a single coach that moves on it, then what is the point putting up that amorphous structure? I hear the number of coaches moving on those rail networks has been two, three, or four at most.
The bottom line is this. That kind of system can be supported only by a vibrant economy – a healthy economy that generates decent income for citizens! In a normally functioning and genuinely rapidly growing economy, business opportunities expand in all corners of a large city like Addis Ababa. This induces movements of people, commuting between their places of work and residences as well as between premises to do business. In the process income is generated and their capacity to pay for fares get enhanced. If all these things are in place, the public transport sector such as the ERC can balance its books, including meeting its domestic as well as foreign debt obligations.
The situation in Ethiopia is quite different, in fact rather perverse. To begin with, the Ethiopian Economy is growing rapidly only on paper and in official government statistics. The fact on the ground tells the exact opposite. There isn’t much vibrant business opportunity. People wish to travel but that wish remains only a desire – government policy has curtailed their capacity to pay fares at a rate that would make ERC profitable. So, ERC operates at much smaller rate than its full capacity, perhaps 10% to 20%. If circumstances would not change, ERC will never ever able to pay its debt. The principal and interest will accumulate and debt would escalate, as it already has, leaving behind a level of debt whose size will become larger and larger over the years as a share of GDP, industry and manufacturing. The debt per citizen will most certainly become even larger.
It should be noted here I confined my analysis only to the case of ERC. If I closely examine the implications of other financial scandals, it is possible to reveal how alarming each case is. In a nutshell the whole of the Ethiopian economy is in a dire state, whose severity is much more grave than most Ethiopians and the donor community may realize. The sooner the on-going madness is put to stop the better.