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Ethiopia’s fake economic growth borrows from ENRON’s accounting December 28, 2015

Posted by OromianEconomist in Uncategorized.
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Odaa Oromoo

the-grim-reality-behind-ethiopia-rise-hype1ethiopia_03Dounle digit EthiopiaEthiopia is the one of the lowest in social Progress 2015

Ethiopia’s fake economic growth borrows from ENRON’s accounting

J Bonsa analyses Ethiopia’s economic growth over the last ten years.  Africa At LSE

More than 70 people have been killed and dozens wounded in an ongoing crackdown on peaceful protesters in Oromia. One of the underlying causes of the prevailing tense political situation is Ethiopia’s bogus claim about “miraculous” economic growth in the last decade.

The youth is not benefitting from the country’s supposed growth and doesn’t anticipate the fulfillment of those promises given the pervasive nepotism and crony capitalism that underpins Ethiopia’s developmentalism.

Courtesy: OPride

Courtesy: OPride

The ruling Ethiopian People’s Revolutionary Democratic Front (EPRDF) came to power in 1991 and briefly experimented with democratic transition. However, a little over a decade into its rule, the party’s former strongman, the late Meles Zenawi, realized that their pretentious experiment with liberal democracy was not working. Zenawi then crafted a dubious concept called, “developmental state.”

Stripped of the accompanying jargon and undue sophistication, Zenawi was simply saying that he had abandoned the democratic route but would seek legitimacy through economic development guided by a strong hand of the state. This was a ploy, the last ditch attempt to extend EPRDF’s rule indefinitely.

Using fabricated economic data to seek legitimacy and attract foreign direct investments, the regime then advanced narratives about its double-digit economic growth, described with such catchphrases as Ethiopia rising, the fastest growing economy in the world and African lioness. The claims that EPRDF has delivered economic growth at miraculous scales has always been reported with a reminder that it takes several decades to build democratic governance. The underlining assumption was that, as long as they deliver economic growth, Ethiopia’s leaders could be excused on the lack of democracy and human rights abuses associated with the need for government intervention in the economy.

EPRDF spent millions to retain the services of expensive and well-connected Western lobbying firms to promote this narrative and create a positive image of the country. These investments were also accompanied with a tight grip on the local media, including depriving foreign reporters’ access if they cross the government line. Ethiopia’s communication apparatus was so successful that even serious reporters and analysts started to accept and promote EPRDF’s narrative on rapid economic growth.

However, a few recent events have tested the truthfulness of Ethiopia’s economic rise. Drought and the resulting famine remain the Achilles heels of the EPRDF government. The government can manipulate data on any other sector, including the aggregate Gross Domestic Product, and get away with it, but agriculture is a tricky sector whose output is not so easy to lie about. The proof lies in the availability of food in the market, providing the absolute minimum subsistence for the rural and urban population.

The sudden translation of drought into famine raises serious questions.  For example, it is proving difficult to reconcile the country’s double-digit economic growth with the fact that about 15 million Ethiopians are currently in need of emergency food aid.

Rampant famine

Except for some gullible foreign reporters or parachute consultants, who visit Addis Ababa and depart within days, serious analysts and students of Ethiopian economy know that authorities have often fabricated economic statistics in order to generate fake GDP growth.  To the trained eye, it does not take a lot to find inconsistencies in the data series. In fact, Ethiopia’s economic growth calculus is so reminiscent of Enron accounting.  (See my recent pieces questioning EPRDF’s economic policies, including anomalies in the alleged achievements of millennium development goals, crony businesses, devaluation, external tradeand finance.)

The tacit understanding in using GDP as a measure of economic growth is that responsible governments generate such data by applying viable international standards and subjecting the data to scrutiny and consistency checks.

Unfortunately, these standards are not foolproof; irresponsible governments with mischievous motives can abuse them. There is credible evidence that shows Ethiopian authorities deliberately inflated economic statistics to promote feel-good, success stories.

Let’s take the agricultural data, which is timely and topical given the ongoing famine. This came to light recently as the European Union tried to understand anomalies in Ethiopia’s grain market, particularly persistent food inflation which the EU found incompatible with the agricultural output reported by the Central Statistical Authority (CSA) of Ethiopia.

The EU’s Joint Research Centre (JRC) then developed the technical specification for studying the scope of the Cereal Availability Study in order to account for the developments in the Ethiopian cereal markets. The International Food Policy Research Institute (IFPRI) was selected to carry out the study.

ethiopiagraph_images_growth1Figure 1 (above) compares the EU-sponsored survey and the Ethiopian government’s survey produced by the CSA. I am using the data for 2007/08 for comparison. The negative numbers indicate that the IFPRI estimates were consistently lower than the CSA data. For instance, CSA overstated cereal production by 34 percent on average.  This ranged from 29 percent for maize to 44 percent for sorghum. The actual amount of Teff produced is lower by a third of what’s reported by the CSA.

The research team sought to explain this “puzzle” by examining the sources of the confusion, the methodological flaws that might have led CSA to generate such exaggerated economic data. Toward that end, they compared CSA’s crop yield estimates with comparable data from three neighboring countries:  Kenya, Tanzania, and Uganda (see Figure 2).

ethiopiagraph_images_growth2

From 2000 to 2007, the average increase in cereal yield for these countries, including Ethiopia, was 19 percent. Yet the CSA reported a whopping 66 percent for Ethiopia’s yield growth. The country was not experiencing an agricultural revolution to justify such phenomenal growth.  It is unrealistic that Ethiopia’s yield growth would be greater than the neighboring East African countries, particularly Kenya, where the agricultural sector is at a much more advanced stage. If anything, the reality in Ethiopia is closer to Uganda, which did not report any yield increase during that period.

This reveals the extents of data manipulation by Ethiopian authorities to create an inexistent economic success story and seeks political legitimacy using a bogus record. We now know the widespread distortions in official statistics on cereal production thanks, in no small part, to EU’s intervention in sponsoring a study and explaining the disparities. Cereals represent only a sub-sector in the agricultural realm. It is likely that worse distortions would be revealed if similar studies were done on Ethiopia’s growth statistics in other sectors, including manufacturing and service divisions.

‘Poverty reduction’

The IMF has praised Ethiopia for achieving accelerated growth with a focus on equity and poverty reduction, a challenging dilemma for most countries. However, a closer look at three interconnected facts turns this claim on its head.

First, as noted above, Ethiopia’s agricultural output has been inflated by 34 percent on average. Second, a33 percent poverty reduction since 2000 is widely reported. Third, there is a consensus that poverty reduction has happened mostly in rural Ethiopia. Now we put these three facts together and apply a simple logic to establish that the 33 percent poverty reduction is explained by the 34 percent exaggerated agricultural outputs. Notice that it is not by accident that the two percentage points are almost identical. Therefore, the ups and downs cancel each other out. In the best-case scenario, poverty rate must remain at the same level as in 2000.

The World Bank, IMF and other donors have often anchored their conclusions on poverty reduction on alleged changes in the agricultural sector, where the bulk of the poor live and work. Little do they know that the data they used to compute the poverty index comes from agricultural statistics with hugely inflated yield assumptions as shown above.

This raises the question: where has the billions of dollars in bilateral and multilateral aid pumped into Ethiopia in the name of poverty reduction and the millennium development goals gone?

‘The enclave economy’

The ‘Ethiopia rising’ storyline is a standard set by foreign correspondents who often repurpose official government press releases, or reports based on the construction projects in the capital, Addis Ababa.

For example, Bloomberg Africa’s William Davison, often uses the proliferating high-rise buildings in Addis Ababa as tangible evidence of Ethiopia’s double-digit economic growth. In his latest whitewash, Davison writes, “such growth is already visible in parts of the capital, where shopping malls and luxury hotels are sprouting up.” That a veteran reporter for a business website unashamedly passes judgment on economic success by referring to heights and width of buildings underscores his shallow understanding of the country’s social and political fabric.

Here are some of the questions that reporters aren’t asking and seeking answers for:  Who owns those building?  Where did the investment money come from?  Are there any firm linkages between these physical infrastructures and the rest of the Ethiopian economy? I have partially answered some of these questions in a previous piece and will soon provide additional insights.

For now, I would like to draw attention to the existence of an “enclave economy” within the mainstream Ethiopian economy. This enclave is made up of highly interconnected crony businesses, which are owned and operated by Tigrean elites, who also have a tight grip on the political and military command structures. Take, for example, the Endowment Fund for Rehabilitation of Tigray (EFFORT), a business conglomerate affiliated with the Tigrean People’s Liberation Front (TPLF). EFFORT has its humble origin in the relief and rehabilitation arm of the TPLF. However, it has undergone amorphous growth and now controls the commanding heights of the Ethiopian economy. By some estimates, EFFORT now controls more than 66 business entities.

The EFFORT controlled enclave and related military engineering complexes have created a semi-autonomous economy in Ethiopia. They made smart choices and specialized in engineering and construction businesses. This means they do not have to rely on the Ethiopian public for their products; instead, each specialize in separate industrial branches and buy from each other and also sell to the government, which is also in their hand. The huge government infrastructural projects necessitated by the “developmental state” model create business opportunities for these engineering companies.

The enclave economy is only loosely linked to the mainstream economy and it does not benefit the bulk of the Ethiopian people in any meaningful way. The luxury hotels and supermarkets that Davison refers to cater for the needs of the affluent business classes, their families, and the expatriate community.

In other words, Ethiopia’s miraculous economic growth, if it in fact exists, must have happened only in the enclave economy. Statistically, it is possible to generate a double-digit economic growth at the national level through a combination of some real astronomical growth in the enclave component and stagnation or declines hidden, through some accounting tricks, in the rest of the economy.

Lock-in style of reporting

Unfortunately, the unquestioned reporting on Ethiopia’s economic success has continued. Even the EU study appears to have been shelved, or deliberately ignored despite the significant findings. Even as a fifth of the population is in need of emergency aid, the World Bank is sticking with the outdated data and has recently released a sensationalized report entitled “Ethiopia’s Great Run: the growth acceleration and how to pace it.”

The ensuing famine has shaken the foundation of Ethiopia’s growth narrative, yet western NGOs and media outlets appear to suffer from the lock-in effect in adopting consistent storylines. They continue to link and refer to the World Bank, IMF and others reports and indexes by multilateral organizations.

That’s why we continue to see comical headlines such as “Ethiopian Drought Threatens Growth as Cattle Die, Crops Fail,” which assumes that Ethiopia’s growth is actually occurring. This acquiescence does not only display ignorance, but it also underscores an effort to evade accountability for previous mistakes and failure to report accurate information.

In a recent interview with The Ethiopian Reporter, Prime Minister Hailemariam Desalegn made a rare and fateful admission: “if we crave for too much praise for our achievements, we might run the risk of undermining the challenges we are facing. These challenges could grow bigger and become irreversible and that would be detrimental.”

Over the past 25 years, the EPRDF worked tirelessly to create a distorted image of the country and began craving and lobbying foreigners for praises.

Enron’s success involved an elaborate scam, but the firm was named “America’s Most Innovative Company” for six consecutive years. This fame did not stop Enron from crumbling. EPRDF’s fate will not be any different. The Oromo uprising has already started the unraveling of its elaborate scams devised to attain legitimacy on the back of non-existent economic and democratic advancement.

 J. Bonsa is a researcher based in Asia.

 

This article was first published on OPride.

 

http://blogs.lse.ac.uk/africaatlse/2015/12/24/ethiopias-fake-economic-growth-borrows-from-enrons-accounting/

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Africa’s middle class is dramatically smaller than we think October 30, 2015

Posted by OromianEconomist in Uncategorized.
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???????????ChinaAfrica

It is puzzling that Africa’s middle class remains small when wealth on the continent has grown quickly, more than doubling over the past 15 years to some $1.63 trillion. One reason is that Africa’s growth has not been distributed evenly—the continent’s richest, 0.2% of the population, control over 30% of the region’s wealth.

Source: Africa’s middle class is dramatically smaller than we think

The middle class in Africa October 27, 2015

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???????????population in multidimensional poverty

 

 

Africa: Why we are getting poorer when the official figures say we are getting richer http://wp.me/p1xhGr-7n

5whaudit

The current issue (October 24) issue of The Economist posed the puzzling question of why the middle class in Africa is so small after a decade in which economic growth has averaged more than 5% a year, about twice as fast as population growth. Two reasons are opined;
(1) The proceeds of economic growth are shared very unequally. In recent years inequality has increased alongside growth in most parts of Africa, and
(2) Poverty in many parts of Africa is so deep that even though incomes may have doubled for millions of people, they are now merely poor rather than extremely poor.

I wish to put forth a third reason. Most of the economic growth comes from the fabled FDI (Foreign Direct Investment) – not a bad thing (every country is jostling for it). Except that with little or no local value addition to the operations of the transnational corporations…

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Burkina Faso: Compaoré may have disappeared, but the state he created remained alive and well – and violently resistant to change. #Africa September 17, 2015

Posted by OromianEconomist in Africa, Burkina Faso.
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Burkina Faso: The sting in the tail of the counter-revolution

SIMON ALLISON, DAILY MAVERICK

17 SEP 2015

simon-burkina-faso-coup.jpg

When the much-feared Presidential Guard stormed into a cabinet meeting to arrest Burkina Faso’s interim President and Prime Minister, we should not have been surprised. Until now, the country’s revolution has been – superficially at least – a little too clean, a little too orderly. In hindsight, another setback was always inevitable. By SIMON ALLISON.

As revolutions go, Burkina Faso’s was relatively tidy. President Blaise Compaoré chose not to fight to the death, scurrying into exile instead; and while violence was used to disperse popular protests, the casualty count remained in the single digits.

But as always, things behind the scenes were a lot more complicated. While interim President Michel Kafando was a civilian, his Prime Minister, Lieutenant Colonel Zida, was drawn from the upper echelons of the elite presidential guard (theRégiment de sécurité présidentielle, or RSP), the primary enforcers of the Compaoré regime. The army, meanwhile, continued to play a major role in political affairs ahead of the general election scheduled for 11 October.

Compaoré may have disappeared, but the state he created remained alive and well – and violently resistant to change.

These tensions exploded into the open on Wednesday, when members of the presidential guard stormed a cabinet meeting and arrested both President Kafando and Prime Minister Zida. State television and radio were taken off air. Nervous citizens stayed at home in anticipation of more trouble, and shops have closed their doors.

On Thursday, the RSP confirmed everyone’s worst fears: this was more than just intimidation tactics. This was a coup. In a public address, a military official said that the interim government had been disbanded, to be replaced with “a national democracy council tasked with organising democratic and inclusive elections” – whatever that means.

Two things prompted this sudden escalation in hostilities. First was the government’s decision to exclude members of the Compaore regime from contesting the upcoming elections. In the statement, the military said that this was not inclusive or democratic and therefore provided legitimate grounds for a coup. It is likely that Compaore’s former party, the Congress for Democracy and Progress, either supported or played a role in orchestrating the coup (tellingly, its leaders have refused to condemn the coup).

Second, and probably more pertinent, was the recommendation by the national Truth and Reconciliation Commission to disband the RSP. This represented an existential threat to the very institution that has now seized power.

“The presidential guard has always been the backbone of power, and within the new political dispensation the new political authorities have made it clear they want to reduce the influence of that unit within the army, if not suppress it completely,” said David Zounmenou, a senior researcher at the Institute for Security Studies.

Leading the campaign against the RSP was Prime Minister Zida, who went from the unit’s second-in-command to its most vociferous opponent. It is likely that personal animosity between Zida and General Gilbert Diendéré, the head of the unit, is also a factor in the current unrest. Although General Diendéré tends to avoid the spotlight, he was often described as Compaore’s right-hand man, or the power behind the throne.

Attention turns now to what comes next. Will the military really organise new elections? Who will take charge in the meantime? And will the people of Burkina Faso – who have already removed one leader through popular protests – accept the takeover?

“Unconfirmed rumours are that General Diendéré would be the new man in power, even if behind the scenes,” said Eloïse Bertrand, a researcher with the University of Warwick and an expert on Burkinabé politics. “The population, however, seems ready to resist this new coup, and I really think there is a wide consensus against the RSP. I think there is a real possibility that things will become violent as the coup leaders seem to have nothing to lose, and would probably repress violently massive protests.” Already, Reuters reported that soldiers fired warning shots to disperse a crowd of more than 100 people gathered in Ouagadougou’s Independence Square on Thursday morning.

Another important question concerns Compaoré himself. If his allies are calling the shots, is the exiled leader likely to return?

“While the RSP is definitely linked to the Compaoré regime, I would be very shocked to see a return of Compaoré himself. History demonstrates that once a military leader has taken power, he is unlikely to hand it to another leader. Therefore, while this is possibly a counter-revolution – or as I would prefer, a ‘counter-coup’ – in that it has returned power to the bloc that previously ruled the country, I do not foresee the return of Compaoré, or the return of democracy,” said Frank Charnas, Daily Maverick contributor and CEO of risk analysis firm Afrique Consulting.

Charnas added: “This coup places the international community in a precarious position. Kafando and Zida were not democratically elected, and while they were set to hold elections in the near future, their mandate was no more legitimate than that of the coup leaders. As was demonstrated following the overthrow of Compaoré, the international community is unlikely to take any concrete action beyond public denouncement of the coup.” DM

Read more at:-

http://www.dailymaverick.co.za/article/2015-09-17-burkina-faso-the-sting-in-the-tail-of-the-counter-revolution/#.VfqsXdJVikq

https://donvely.wordpress.com/2015/09/17/burkina-faso-military-confirms-coup/

Reinventing the current growth model: The need to rework the current economic system to serve all of humanity rather than an elite few August 4, 2015

Posted by OromianEconomist in Economics, Economics: Development Theory and Policy applications, Growth and Inequqlity.
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???????????Trickle down economicsA shocking investigative journey into the way the resource trade wreaks havoc on Africa, ‘The Looting Machine’ explores the dark underbelly of the global economy.

 

 

Although the grievances voiced differed from country to country and from region to region, the belief that the incumbent economic and political system was characterised by inequity and injustice was common to all.

If we are to avoid large-scale societal upheavals in this ultra-connected world, government, business and civil society must come together to rework the current economic system to serve all of humanity rather than just an elite few.

– Fergus Simpson, The Guardian

 

 

Widening inequality gap proof of outdated growth model

We need to rework the current economic system to serve all of humanity rather than an elite few, writes Xyntéo’s Fergus Simpson

 

January saw leading figures from business, government and civil society gather at the World Economic Forum in Davos. A broad spectrum of subjects were debated, including the prospect of a legally binding climate change agreement in Paris this December, Ebola and the nefarious advance of the Islamic State in Mesopotamia. I was particularly encouraged to see one topic keep cropping up – the crisis of burgeoning disparities in wealth.

In a report released in the runup to Davos, Oxfam predicted that within two years the richest 1% of people will have accumulated more wealth than the remaining 99%. The same study found that the wealth of the richest 80 billionaires has continued to increase since 2010, while the wealth of the poorest half has decreased over the same time period. The gap between the haves and the have-nots is growing.

History has taught us that there are moments when people rise up to make a point and say that enough is enough and times must change.

On 25 January 2011, the world witnessed one such moment – pro-democracy protesters occupied Tahrir square in Egypt’s capital, Cairo, demanding self-determination, equality of opportunity and freedom from the shackles of tyranny and oppression. Some 17 long days of demonstrations and civil disobedience followed, bringing the moribund autocracy of longtime Egyptian president Hosni Mubarak to an end.

This event formed part of a much broader social movement that swept across North Africa and the Middle East, toppling sclerotic regimes and corrupt dictators. Before long people in Spain, Greece, the UK and US took to the streets as well. Although the grievances voiced differed from country to country and from region to region, the belief that the incumbent economic and political system was characterised by inequity and injustice was common to all.

And it isn’t just the poor who have been affected – the middle classes have also borne the burden of mushrooming inequalities. Companies have tended to become more productive since the 1970s, but the incomes of middle class workers have remained largely static. Returns from higher productivity have tended to go to owners and investors, not to the workers.

In many ways, inequality has become the defining issue of our time. The popular uprisings that shook the Arab world at the start of this decade were just symptoms of this most elemental of societal ills.

Fortunately, there is no reason to suppose this state of affairs is inevitable.

A promising step forward was announced at Davos, when Ajay Banga, CEO of GLTE partner MasterCard, and Donald Kaberuka, president of the African Development Bank, revealed that they intend to collaborate to foster inclusive growth in Africa.

The MasterCard Labs for Financial Inclusion, funded by an $11m (£7.24m) grant from the Bill and Melinda Gates Foundation, aims to enable more people to access banking services – generating greater equality of opportunity across the world, in developed and developing countries alike. The initiative will soon begin operations in Nairobi, Kenya, and aims to reach over 100 million people globally.

Technological advancements can support the implementation of projects designed to promote inclusive growth, such as the MasterCard Labs for Financial Inclusion. Digital innovations in payment systems and social media, for example, have enabled people to access markets, ideas and information to an extent that is unprecedented in human history.

Indeed, it has been said that the Egyptian revolution started when Whael Ghonim, a marketing executive at Google, saw the bloodied remains of Khaled Mohamed Said – a young man bludgeoned to death by the Egyptian police – pictured on Facebook. Incensed by the injustice that confronted him, Whael created the Facebook page “Kullena Khaled Said” – “We Are All Khaled Said”. Three months later 250,000 people had joined the page. Just one year later the Mubarak regime was no more.

If we are to avoid large-scale societal upheavals in this ultra-connected world, government, business and civil society must come together to rework the current economic system to serve all of humanity rather than just an elite few.

At Xyntéo, we are convinced that the current growth model has become out of date – incapable of meeting the demographic, climate and resource demands of today. Together with our partners, we believe that global business, with its clout, resources and energy, is uniquely placed to overcome this challenge. To us this means reinventing the current growth model so it brings prosperity to much larger numbers of people.

Fergus Simpson is project coordinator at Xyntéo

Read more at source:-

http://www.theguardian.com/sustainable-business/xynteo-partner-zone/2015/feb/04/widening-inequality-gap-proof-of-outdated-growth-model

Ethiopia: GNI per capita , Atlas method (current US$) June 24, 2015

Posted by OromianEconomist in Africa Rising, Youth Unemployment.
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???????????Ethiopia is the one of the lowest in social Progress 2015Ethiopia's Per capita income trend, relative to  Sub-Saharan Afr 001

Ethiopia’s Per Capita Income trend, relative to Sub-Saharan Africa Average

Sub-Saharan African countries are the poorest regions of  Africa and the world. The World Bank’s Per Head Income trend from 2005 shows that Ethiopia’s trend is by far below Sub-Saharan Africa average trends with constantly widening gap. With Per Capita Income of  below $500 throughout the trends,  World Bank data shows that Ethiopia’s trend has been below the averages of world’s low income countries. So, what is the point of Ethiopia’s ‘fastest growth’ hype?

GNI per capita, Atlas method (current US$) GNI per capita (formerly GNP per capita) is the gross national income, converted to U.S. dollars using the World Bank Atlas method, divided by the midyear population. GNI is the sum of value added by all resident producers plus any product taxes (less subsidies) not included in the valuation of output plus net receipts of primary income (compensation of employees and property income) from abroad. GNI, calculated in national currency, is usually converted to U.S. dollars at official exchange rates for comparisons across economies, although an alternative rate is used when the official exchange rate is judged to diverge by an exceptionally large margin from the rate actually applied in international transactions. To smooth fluctuations in prices and exchange rates, a special Atlas method of conversion is used by the World Bank. This applies a conversion factor that averages the exchange rate for a given year and the two preceding years, adjusted for differences in rates of inflation between the country, and through 2000, the G-5 countries (France, Germany, Japan, the United Kingdom, and the United States). From 2001, these countries include the Euro area, Japan, the United Kingdom, and the United States. -World Bank national accounts data, andOECDNational Accounts data files

The rhetoric of #Africa’s economic ‘rise’ does not reflect reality June 19, 2015

Posted by OromianEconomist in Africa, Africa Rising.
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???????????Dounle digit Ethiopia

 Ethiopia Least competetive GCI 002

‘African economies consistently underperform the Southeast Asian average across all the pillars. The most critical gaps continue to be seen in the areas of basic requirements of competitiveness: institutions, infrastructure, and education and skills.19 This is troubling because the majority of African economies are classified as factor-driven economies (see Table 1), so these areas are currently the most critical areas for the competitiveness of these countries. On a more positive note, Africa’s financial, goods, and labor markets function comparatively well (on par, or nearly on par, with Latin America). However, ease of entry and exit from low-wage, low-productivity jobs will not lead to improved competitiveness. It will be important to build upon the region’s comparatively efficient markets by investing in  other competitiveness-enhancing reforms. A particular point of concern is the continent’s weak institutions. Although Africa’s performance is similar to that of Southeast Asia and Latin America and the Caribbean in this pillar, the institutions in all three regions receive scores below 4 out of 7. This suggests that more effort should be made to increase the capacity of the institutional framework, as it provides a critical foundation for the other dimensions of competitiveness. Indeed, the quality of institutions has actually been deteriorating in both OECD and African economies according to the GCI. This might explain in part why Africa’s competitiveness seems to have stagnated in comparison to OECD economies
(see Figure 11a). In Africa, a decline in security and government efficiency—two components of the public institutions subpillar—would appear to be at the core of this decline. Sound public institutions and governance are an important prerequisite for economic development.’-    
Africa_Competitiveness_Report_2015

Is Africa really rising? History and facts suggest it isn’t

Grieve Chelwa, Africa is A Country
In the year 2000, the Economist ran a cover story with the title “Hopeless Africa”. Four years later, Robert Guest, who served as the newspaper’s Africa Editor, published “The Shackled Continent”, a book that pretty much concluded that, absent any miracles, Africa’s future was bleak. The book was widely praised, not least of all by all-round Africa expert Bob Geldof who said “[it] was written with a passion for Africa and Africans”.  Then in 2011, the current era of Afro-euphoria signalled its triumphant entrance with the Economist’s Africa Rising cover story. In contrast to their cover story of just a couple of years back, this one declared that there was hope for the hopeless continent (TIME did exactly the same thing in 2012).

We’ve written about the Africa Rising meme on this site, from culture to politics to music to fashion, again and again and again and again and again and again andagain and again. Now for the economics.

To be sure, African economies have begun growing again after contracting for most of the 1980s and 1990s. According to the World Bank, real GDP per capita shrank at a rate of 1% per year over the period 1980 to 2000 for sub-Saharan Africa as a whole. Since 2000, real GDP per capita has grown at the more respectable rate of 2% per year. And it appears that the incidence of poverty, at least as measured by the World Bank, also declined, although marginally, during the last decade.

Many so-called Africa watchers seem to have caught the “Africa rising” bug. There is now wide expectation, undergirded of course by the likes of the Economist, that growth will continue unabated going forward. Africa’s time is now! So declared a piece in the trendy Harvard Business Review.

The “Africa rising” narrative suggests the continent is now well on its way to self-sustaining growth. The kind of growth that the East Asian “tigers” and the countries known as the West experienced during the times they were rising. The kind of growth that has led to a massive reduction in poverty in China within a generation. Unfortunately here is where reality stands at odds with the euphoria.

Africa’s current growth revival (the continent did grow, and healthily so, from the 1960s to the 1970s) seems to be largely driven by external factors: China’s spectacular growth and along with it an increase in the price of commodities, whose exports Africa relies on to a great extent. So any slowdown in China’s growth, as is likely to happen as its economy matures, is likely to impact greatly on Africa’s performance.

To be sure, there have also been some internal drivers of growth: price distortions have been reduced in agriculture, macroeconomic stability has been restored (inflation rates are low and stable across most of the continent) and political institutions have improved (democracy and elections are now more common on the continent than before). But the prospects of these internal policies to sustain long-run growth are dismal. The Harvard economist Dani Rodrik, in a highly insightful essay titled “An African Growth Miracle?”, points out that the relationship between standard measures of good policies (macroeconomic stability, reduced price distortions, etc…) and economic growth tends to be weak. At best, good policies make economic crises less prevalent but cannot sustain and drive growth on their own. The same is also true of institutions, which following the much publicized work of Daron Acemoglu and friends, has become the be all and end all of development thinking. Rodrik points out that Latin America has experienced positive institutional changes within the last 20 years with a small payoff in growth. On the other hand, impressive growth in South Korea (until the 1990s) and China (today) has occurred alongside rampant cronyism and corruption.     

According to Rodrik, self-sustaining growth begins to occur when an economy undergoes a structural transformation from relying less on agriculture to relying more on industry. That is, self-sustaining growth is underpinned by large-scale industrialization. This is the historical lesson of the East Asian tigers, of China, and of even the West. Unfortunately the facts for Africa point in the opposite direction. Yes, African labour has moved out of agriculture in large numbers, but the beneficiary has not been manufacturing but services. The service sector tends not to be as “productive” as the manufacturing sector. And productivity, which is the ability to produce ever more output from the same amount of inputs, is what drives and sustains growth. The share of manufacturing in the economies of most African countries has declined from about 15% in the 1970s to around 10% today. That is Africa has in fact deindustrialized! And even the 10% of GDP that is manufacturing is mostly made up of small informal firms that are not particularly productive and are unlikely to evolve into big formal firms. Rodrik sums up his prospects for Africa thus:

“To sum up, the African pattern of structural change is very different from the classic pattern that has produced high growth in Asia, and before that, the European industrializers. Labour is moving out of agriculture and rural areas. But formal manufacturing industries are not the main beneficiary. Urban migrants are being absorbed largely into services that are not particularly productive and into informal activities. The pace of industrialization is much too slow to [spurn self-sustaining growth].”   

So what can be done? Rodrik suggests that industrialization can be helped along by improving the “business climate” in Africa. But the problem with the business climate argument, apart from being vague, is that it does not confront the fact that Africa was more industrialized in the 1970s, at a time when the business climate was likely no different from what it is today. In my opinion, the Structural Adjustment Policies (SAPs) that were administered beginning in the early 1980s are largely responsible for halting the pace of industrialization on the continent. With SAPs, Africans were told by their betters to stop supporting industry because doing so was “wasteful”. Subsidies to industry were reduced. Protective trade barriers were removed. Planning for industry was done away with. All this advice was dispensed in spite of the fact that today’s developed countries industrialized behind a veil of considerable state support. For instance, the historian Sven Beckert points out that Britain’s cloth manufacturing industry, which was largely responsible for the Industrial Revolution, was shielded from competition from India for most of the 18thCentury. The Cambridge economist Ha-Joon Chang has called this phenomenon of rich countries forcing policies on poor countries that they themselves did not implement during their time of take-off as “kicking away the ladder”.   

Africa needs to industrialize for it to really rise. Unfortunately the rhetoric around “Africa rising” is giving us a false sense of comfort and distracting us from the real work that needs to happen.

Source:

http://africasacountry.com/is-africa-really-rising-history-and-facts-suggest-it-isnt/

#Africa is NOT rising – Part III February 10, 2015

Posted by OromianEconomist in Africa, Africa Rising, Corruption in Africa, Ethiopia's Colonizing Structure and the Development Problems of People of Oromia, Afar, Ogaden, Sidama, Southern Ethiopia and the Omo Valley, Free development vs authoritarian model, Uncategorized.
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Ocorruption-empire

“For African farmers, what some are calling rising has been a sinking.
The sabotage of African economies by Africans is on the rise, be it through deficit theft, corruption or wars that never seem to end, our capacity to destroy our treasures and manpower is growing faster than our capacity to build them.
This definitely does not constitute rising, because:

  • You cannot rise when you do not have electricity to power your industries.
    You cannot rise without technology or industries, not in the century, not ever.
    You cannot rise with poor or not transport infrastructure.
    You cannot rise when the majority of your people are sleeping on empty stomachs, raising malnourished children whose survival in the world is made uncertain by stunted development of their brains and bodies.
    You cannot be rising if your share of profits from agricultural production is declining.
    You cannot rise if you are busy wrecking your own economy through corruption, theft and other forms of sabotage
    And you definitely cannot be rising if the environment and biodiversity that sustains life is dying in your hands.

So, what am I saying? I am not saying that Africa cannot rise, on the contrary, I am saying that Africa CAN rise but only if we work extra hard, understand the world we live in and take charge of our destiny.

I love the final quote from Mr. Annan “We should not mistake hope for achievement”. Given the situation in Africa at the moment, I am scared to think the some leaders if not all are complacent with where we are. To me, this is leadership WITHOUT vision. There are so many issue plaguing our continent right now ASIDE from diseases. The greatest illnesses that kill us are birthed from we, ourselves. Power hunger, greed, selfishness, hate, over zealous self ambition, a disgusting lack of humility and intense vanity.

Even though might be what we see at the moment, I see an Africa that is free from the above. An Africa that is led by people wanting to make a difference in the world and not in the depth of their pockets. The situation now is NOT what is will always be. However, for that to happen, WE, the fourth generation MUST stand up in belief for our Africa, pull up our socks and MAKE THINGS HAPPEN. What do you think?

No great nation was made by Wimps – You can quote me on that!”

Africa is not rising, survey shows. Research suggests that the boom benefits only a narrow elite while leaving the poor and unemployed behind.

http://www.theguardian.com/world/2013/oct/02/africa-not-rising-survey

DEAR AFRICA PROJECT

5064Here is me picking up from where I left off with my Africa is NOT rising article which is a featured presentation from Mr. AlI Mfuruki from Tanzania. The presentation was done at a Tedx event late last year. This is in fact part 3 of a 3 series post dedicated to his presentation (Simply because his assessment of the “Africa rising” media propaganda was so relevant and accurate for anyone wanting to build the continent). In case you have not had the chance to go through the first 2 posts, here you go: Africa is NOT rising – Part I & Africa is NOT rising – Part II

This is the final post in this series. Mind you; Only once you had read the first 2 posts, will you be able to get the full gist of his presentation. Please go on and click the links above then come…

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