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African leaders have expected that as China rises further, its wage levels will create disincentives for global manufacturers to continue sending work there. As that happens, they hope countries like Ethiopia, Rwanda, and Kenya can be seen as reliable alternatives that provide affordable labor with enough infrastructures for basic manufacturing. But with AI advancements decreasing outsourcing, the availability of cheap wage becomes irrelevant. China understands that, and is investing heavily to win the race of advanced manufacturing, tapping into the capabilities it acquired by making things for the world. If any outsourced manufacturing will remain, it is the advanced manufacturing. Based on available reports, Africa is not preparing for that level yet, as it continues to struggle with basic enablers like electricity, challenges that many countries solved many decades ago.
China designed and executed a policy that shrank the industrialization process in a mere 25 years — something that many economies took at least a century to do. That redesign has brought immense dislocation in global commerce and industry, enabling China to become one of the world’s leading economies.
China’s success has led many African capitals to pursue the country’s same industrialization trajectory. Over the last few years, African leaders have been pursuing policies designed to mimic the path China took. Some of these policies include creating special economic zones after China’s Shenzhen and positioning the manufacturing sector as a fulcrum to attract investments and create new jobs. Despite these efforts, Africa has yet to advance in its industrialization at the same speed China did.
Put simply, the things that worked for China will not work for Africa.
China had already won sizable global manufacturing, accounting for more than 32% of the world’s industrial production as of May 2019. It became the world’s manufacturing capital through a combination of factors, including optimal infrastructure and price-competitive local manufacturing talent. In doing so, China created a well-differentiated comparative advantage that made companies from the U.S. and Europe — and later, other parts of the world — outsource manufacturing activities to China.
For more than three dozen years, a virtuous circle was created: The availability of demand from the U.S. and Europe provided China the opportunity to invest to meet its needs. And over time, China moved from basic manufacturing into advanced manufacturing domains, where state-of-the-art technologies are used to improve processes and many lower-skill processes are automated. Consequently, China has improved its capabilities in robotics and broad emerging technologies like virtual reality, augmented reality, and artificial intelligence. Today China is recognized as a leading AI player.
It is in these technological advancements that China can continue to dominate while Africa may struggle. AI is expected to distort the equilibrium of the global labor market, eliminating many factory jobs. Most Western companies will use AI to do most of the manufacturing jobs that they are currently outsourcing to China. Indeed, AI will create a massive shift in how products and services of the 21st century are developed, manufactured, and distributed.
If the manufacturing jobs by global entities like Dell, HP, and Siemens do not need to be outsourced, the expected opportunity Africa is banking on may not materialize. African leaders have expected that as China rises further, its wage levels will create disincentives for global manufacturers to continue sending work there. As that happens, they hope countries like Ethiopia, Rwanda, and Kenya can be seen as reliable alternatives that provide affordable labor with enough infrastructures for basic manufacturing. But with AI advancements decreasing outsourcing, the availability of cheap wage becomes irrelevant. China understands that, and is investing heavily to win the race of advanced manufacturing, tapping into the capabilities it acquired by making things for the world. If any outsourced manufacturing will remain, it is the advanced manufacturing. Based on available reports, Africa is not preparing for that level yet, as it continues to struggle with basic enablers like electricity, challenges that many countries solved many decades ago.
Africa can find the paths to industrialization, but in ways that do not mimic China’s. Here are some of the paths for the continent; some are already in progress and need to be deepened:
Encourage internal consumption and intra-trade. Africa should build processes to improve internal consumption, rather than focusing on using cheap labor as a comparative advantage for global manufacturing. If Africa expands internal consumption by trading more among member states, decoupling from old colonial trade routes, it can industrialize, as it has sizable markets to support the growth of companies. Today, the share of intra-African exports as a percentage of total African exports is about 17%, well below the 69% recorded for Europe and 59% for Asia. Improving intra-African commerce will advance the continent.
Push forward the Free Trade Agreement. The African Continental Free Trade Agreement, which entered its operational phase on July 7, will remove some inherent barriers for intra-continental trade that have caused most African countries to favor trade with European countries and other global counterparts, rather than with African nations. The agreement has been designed to make goods produced in Africa move within the continent at negligible tariffs. The expectation is that manufacturers will be incentivized to invest in Africa in order to have access to the integrated market. If it works as planned, the trade agreement will be a catalyst to African industrialization.
Create a single African currency. The planned currency got a boost when a regional economy, the Economic Community of West African States, announced plans to launch the ECO as a regional currency in 2020. The expectation is that once regional economies have monetary union convergence, a continental-level monetary union will be formed. A single currency will reduce barriers in trade by eliminating multiple exchanges, wherein currencies have to be converted to one of the leading global currencies, like the U.S. dollar, euro, or British pound sterling, before trading in Africa. This drastic reduction on trade frictions will boost industrialization.
There are risks to these structural redesigns, however, which must be managed. A union arising out of the single currency will require a supranational bank to coordinate monetary policies, depriving member countries of individual flexibility on areas of monetary policies. The implication is that some bigger economies will have undue influence on the performance of the union. Without careful management, the smaller economies affected could experience welfare losses, making them worse off than before the integration.
Improve infrastructure. In its 2019 African Economic Outlook, the African Development Bank wrote that “trade costs due to poorly functioning logistics markets may be a greater barrier to trade than tariffs and nontariff barriers.” Africa needs more deep seaports, railway lines, airports, and other critical enablers of modern commerce in order to advance. It remains more expensive for an operating factory in Accra, Ghana, to import coffee from Rwanda than from a Paris-based company, for instance. And most exports outside Africa are unprocessed raw materials that, because of supply chains and the disparate natures of the markets, have not stimulated local processing. Investment in infrastructures will close the gaps.
Invest in education. Africa also needs to invest in education to compete and advance its citizens so that it can boost internal consumption. The continent must make primary and secondary education compulsory — and free — while boosting quality by committing more resources to education. Unless Africa can educate its citizens to compete with the best in the world, it will struggle to rise.
As robotics and AI advance, most countries will keep their production processes at home, eliminating the need for cheaper labor abroad. In this redesign, Africa’s competitor is not China; robots and AI are the real competitors. Africa can no longer depend on global manufacturing to become industrialized, nor can it simply mimic China’s policies. But if Africa educates its citizens, integrates effectively on trade and currency, and improves intra-African trade, its industries can compete at least to serve its local markets. Where that happens, Africa can attain industrialization faster by scaling indigenous innovations and utilizing AI as enablers.
The problem with using statistics to sing the praises of autocracy is that collecting verifiable data inside closed societies is nearly impossible. From Ethiopia to Kazakhstan, the data that “proves” that an authoritarian regime is doing good is often produced by that very same regime.
Once regime-produced data makes it into the world’s most trusted indexes, authoritarians and their unintentional supporters use these numbers in their propaganda, which hampers efforts to promote human rights.
When Ethiopian prime minister Meles Zenawi died in 2012, Bill Gates led a chorus of Western praise for his development efforts, praising Zenawi for bringing millions out of poverty and ignoring his near-total censorship or his massacre of hundreds of protestors. The Economist and the The New York Review of Books have since pointed out that the Ethiopian regime fabricates development statistics.
Why Dictators Love Development Statistics
They’re an easily faked way to score international points.
Exchanges at the Organization of American States usually don’t do well on YouTube. But when the Honduran Minister of Foreign Affairs brought up Venezuela’s crackdown on dissent last summer, Venezuelan representative Delcy Rodríguez scored surprise points with a rebuttal citing the United Nations’ 2016 Human Development Index, which ranks Venezuela 59 spots higher than Honduras. Crackdown or no crackdown, “Venezuela does not demonstrate such terrifying statistics,” she said, in an exchange that soon went viral on Spanish-speaking social media. It was a win for the Maduro regime, and the key to victory was trusted U.N. data.
For those of us working to advance human rights, such episodes are becoming frustratingly familiar. From the development initiatives of Jeffrey Sachs and Bill Gates, to Tony Blair’s despotic partnerships or Tom Friedman championing Chinese autocracy in The New York Times, the last two decades have seen political concerns repeatedly sidelined by development statistics. The classic defense of dictatorship is that without the messy constraints of free elections, free press, and free protests, autocrats can quickly tear down old cities to build efficient new ones, dam rivers to provide electricity, and lift millions out of poverty.
The problem with using statistics to sing the praises of autocracy is that collecting verifiable data inside closed societies is nearly impossible. From Ethiopia to Kazakhstan, the data that “proves” that an authoritarian regime is doing good is often produced by that very same regime.
A handful of organizations power the global industry of statistics collection, including the World Bank, the United Nations, and the World Economic Forum. Each of these organizations conduct large-scale socio-economic surveys, where researchers want to include as many countries as possible. However, many of these countries—93 of them, comprising nearly 4 billion people, according to the Human Rights Foundation—are ruled by authoritarian regimes that typically block impartial investigators from entering their borders. Often, data collectors are forced to work with the strongmen in charge.
For Bahrain, the World Economic Forum receives most of its data from surveys given to government officials at the Bahrain Economic Development Board, who conduct them and give the results back to Geneva. In WEF’s analysis from that point, outliers may be cast out or excluded with data modeling, but the foundational numbers remain entirely a creation of the dictatorship.
UNESCO representatives say that in the case of Cuba, they use the regime’s education numbers in compiling their reports. There is no on-the-ground verification for these often-encouraging figures. Meanwhile, a former treasury official from Uzbekistan said that visits from international data collectors were highly choreographed, and that the regime was easily able to control survey outcomes.
When surveys don’t go according to plan, dictators can simply shut polling down. Gallup World Poll director Jon Clifton, when I called him up as part of a Human Rights Foundation interview several years ago, recalled a time when the company’s researchers had collected data in one African country, only to have their equipment seized at the airport on the way out.
Still, no one wants blank countries on their world maps. “Ultimately, organizations need to produce some kind of data,” Clifton said. “Even if it’s not terribly good, they still need data.”
But the development reports using such numbers also wind up giving them institutional legitimacy, in ways that can affect huge decisions in aid and trade. World Bank data in particular, as one 2012 study observed, is promoted in media outlets as a reputable guide for global investment, and has inspired reforms as countries seek to climb the rankings. UNESCO’s numbers go into the World Development Report (World Bank) and the Human Development Index (UNDP), where they serve, in UNESCO’s own words, to “benchmark progress towards national and international targets.” The educational components of the Sustainable Development Goals—which guide and inspire do-gooders and impact investors across the planet—are measured with UNESCO data. Statistics flow directly from many dictatorial governments to UNESCO and then into the SDG reports.
Once regime-produced data makes it into the world’s most trusted indexes, authoritarians and their unintentional supporters use these numbers in their propaganda, which hampers efforts to promote human rights.
When Ethiopian prime minister Meles Zenawi died in 2012, Bill Gates led a chorus of Western praise for his development efforts, praising Zenawi for bringing millions out of poverty and ignoring his near-total censorship or his massacre of hundreds of protestors. The Economist and the The New York Review of Books have since pointed out that the Ethiopian regime fabricates development statistics.
Halfway across the globe in Venezuela, the late Hugo Chávez built a global reputation as the people’s president, proudly flaunting statistics showing his administration had reduced poverty by 50 percent. In 2014, Chavismo heir Nicolás Maduro justified his crackdown on dissent—torturing and kidnapping student protesters—in a New York Times op-ed citing data showing that his regime “consistently reduced inequality,” “reduced poverty enormously,” and “improved citizens’ lives over all.” The source of that data? The U.N. Economic Commission for Latin America and the Caribbean, which used Millennium Development Goal data—which came directly from the regime’s own statisticians.
In Azerbaijan, Ilham Aliyev’s dictatorship has used economic growth data to convince the world that it is a thriving, effectivegovernment with a robust investment climate. The World Economic Forum, among others, gave the Azeri regime a platform to talk about its financial success—which is used to whitewash crimes ranging from the jailing of dissidents to the theft of billions.
Rwandan dictator Paul Kagame’s human rights violations are legion: the assassination of critical journalists, sponsorship of death squads in the Congolese jungle, the use of international hitmen, and the jailing of political opponents. Despite all this, supporters ranging from Bill Clinton to Jeffrey Sachs breathlessly praise his leadership and economic success. When Kagame “won” 99 percent of the presidential vote a few months ago, the international community was quick to call that political data into question. But Rwanda’s literacy rates, life expectancy, and economic growth numbers continue to be taken at face value.
This near-universal lack of skepticism is hard to explain, especially since the problem isn’t new. In 1987, two Soviet economists published an article called Lukavaya Tsifra(“cunning numbers”) which demonstrated that between 1928 and 1985, the USSR’s GDP had grown over ten times slower than reported by the regime’s Central Statistical Administration. They showed that the regime’s “official” economic data was being falsified to whitewash human suffering.
When used by universities and research institutions, socio-economic data sets guide our fundamental understanding of the world. When used by policy makers, philanthropists, and bankers, they steer billions of dollars of aid and investment. Often, the reason data from dictators remains unchallenged is that so many economists, financiers, diplomats, and donors rely on it to do their jobs.
But without more rigorous inquiry into the origin and quality of socio-economic data, the grim reality of dictatorship often remains obscured. Beyond that, intellectuals and world leaders might do well reflect on their worship of development numbers over human rights concerns.
After all, even if the data behind the UN’s 17 Sustainable Development Goals could be verified, what do they signify if not a single one mentions the words individual rights, civil liberties, or democracy—even once? Numbers aren’t always as simple or as neutral as they seem.
Many decades after the official end of the western empires in Africa, the continent is still being sucked dry by a cartel made up of small local elites, multi-national companies and foreign governments. The money given to Africa to help its so-called “development” is referred to as “aid”, when in fact it should be seen as a form of reparations for a history of colonisation and ongoing domination that has left the African people almost as far from economic and social justice as they were when the European empires packed up and left in the years following the end of the Second World War.
We should be putting our western guilt to good use and pressuring government to regulate “investment” in the continent.
The world’s second-largest continent, Africa, is still defined in the western media in just two principle ways.
The more “woke” understanding of Africa is the idea of “Africa Rising”, which is defined by images of young people on bustling streets speaking on mobile phones. “Africa Rising” stories tend to focus on smart entrepreneurs doing something tech-related in massive urban centres like Lagos, Nairobi or Cape Town. They promote an image of the continent that is considered modern and future-focused. These stories are often, as the Kenyan journalist Parselelo Kantai once put it to me, “insidious little fictions manufactured by global corporate finance”.
The other main narrative is the more familiar one: hapless Africa, the tragic continent that can only continue to survive with the help of aid money provided to it by outsiders. This is the narrative of Live Aid and Bono, the story told to us immediately after news reports of famine and unrest in places that, we are made to believe, just can’t get by without western charity.
Given these two themes, it would seem unlikely that more money is taken out of the 47 countries that form what is commonly called “Sub-Saharan Africa” than is put back in. Yet, British and African campaign groups, including Global Justice Now, released a report this month which found that, in 2015, much more money was taken out of Africa in the form of illegal extraction of natural resources, tax avoidance and spiralling interest on debt repayments than was “given” to the continent in the form of aid and grants.
The report, entitled Honest Accounts 2017 , finds that the countries of Africa are “collectively net creditors to the rest of the world, to the tune of $41.3 billion [£32.2 billion] in 2015”.
Rather than Africa being a hapless continent dependent on the rest of the world, it is the exploited continent whose natural resources are enriching a local and global elite at the expense of the vast majority of its citizens, and whose governments can do little about the illegal syphoning of revenue into tax havens.
According to War on Want, 101 (mostly British) companies listed on the London Stock Exchange control an identified $1.05 trillion (£820 billion) worth of resources in Africa in just five commodities: oil, gold, diamonds, coal and platinum. Twenty-five of those companies are incorporated in tax havens.
While African countries receive around $19 billion (£14 billion) in aid in the form of grants, $68 billion (£53 billion) is taken out in capital flight. The main culprits are multinational corporations and corrupt officials with their large infrastructure of lawyers, bankers, accountants and financial advisors skilled in tax dodging.
The main device used is transfer pricing. By overpricing imports and under-pricing exports on customs documents, companies and individuals can move money to tax havens. This means that multi-national companies deliberately misreport the value of their imports or exports in order to reduce the tax they have to pay on them. Furthermore, these same companies repatriate $32 billion (£25 billion) in profits made in Africa to their home countries every year. Money made on the continent of Africa, then, is returned to enrich those outside of Africa.
The report goes on to say that African governments paid out $18 billion (£14 billion) in debt interest and principal payments in 2015. Though they received $32.8 billion (£25.6 billion) in loans, the overall level of debt is rising rapidly, and loans often lock African governments into even more debt: private lenders, the report notes, “are encouraged to act irresponsibly because when debt crises arise, the IMF, World Bank and other institutions lend more money, which enables the high interest to private lenders to be paid, whilst the debt keeps growing”. Ghana is losing 30 percent of its government revenue to debt repayments. Private lenders benefit, while ordinary Africans suffer.
Illegal logging, fishing and the trade in wildlife and plants are also hurting Africa, with an estimated $29 billion (£22.6 billion) a year being stolen from the continent through these practices. Climate change is hitting the continent particularly badly; though of course the extractive and industrial practices that led to climate change were a phenomenon of non-African countries.
As Bernard Adaba, policy analyst with ISODEC in Ghana, says: “‘Development’ is a lost cause in Africa while we are haemorrhaging billions every year to extractive industries, western tax havens and illegal logging and fishing. Some serious structural changes need to be made to promote economic policies that enable African countries to best serve the needs of their people rather than simply being cash cows for western corporations and governments.”
Many decades after the official end of the western empires in Africa, the continent is still being sucked dry by a cartel made up of small local elites, multi-national companies and foreign governments. The money given to Africa to help its so-called “development” is referred to as “aid”, when in fact it should be seen as a form of reparations for a history of colonisation and ongoing domination that has left the African people almost as far from economic and social justice as they were when the European empires packed up and left in the years following the end of the Second World War.
Recognising the troubling role western governments and companies play in the impoverishment of Africa could serve as a beginning to reverse this process. The Honest Accounts report proposes a number of steps that can be taken to help reverse the flow of money out of Africa, including putting less faith in the extractives industry, enabling transparent and responsible lending and regulating the investment that corporations bring in to African countries.
The report also speaks of the damage done by enforced privatisation (sometimes disguised as aid) across the continent, and calls for the promotion of “economic policies that genuinely lead to equitable development”. Currently, too little power lies in the hands of local people and the market is given free rein.
Tax havens are a key issue, one that was recognised in Labour’s election manifesto, which said that the “current global tax system is deeply unjust”. Jeremy Corbyn’s party promises to “act decisively on tax havens”, which play a key role in allowing vast sums of money to be taken out of Africa. The UK enablesthis wealth extraction to take place and sits at the head of a vast network of tax havens.
Finally, there is the need for more public recognition of what is going on. This is not about stoking up western guilt; it is about identifying the causes behind rising inequality in Africa and elsewhere, and about correcting a lazy media narrative that patronises and insults Africans while keeping everyone in a state of ignorance. The truth is this: Africa is still being plundered. It is time western governments and the western media stopped pretending otherwise.
Ethiopia: “There’s been a brilliant PR campaign on its part to sell a story that does not really exist.”
‘Yet the data show that manufacturing now accounts for a smaller slice of Ethiopia’s economy than at almost any point since the early 1980s.In 2015, the sector accounted for just 4.1 per cent of Ethiopia’s gross value added, well below the peak of 7.8 per cent in 1997, according to data from the World Bank, as the second chart shows. Moreover, manufacturing accounts for a smaller share of Ethiopia’s economy than that of virtually any other country in sub-Saharan Africa.
South Africa, Kenya, Ivory Coast, Cameroon, Benin, Malawi, Mozambique and even Zimbabwe all generate at least 10 per cent of their gross value-added from manufacturing, with the likes of Nigeria and Uganda not far behind, as the third chart shows. Across sub-Saharan Africa as a whole, 10.6 per cent of continental GVA emanates from the sector, according to the World Bank, raising the question as to why Ethiopia is seen as one of the few African nations to have made a go of manufacturing.
“Ethiopia has the smallest manufacturing share of any of the African countries we look at,” says Charles Robertson, chief economist at Renaissance Capital, a Moscow-based investment bank with a focus on emerging markets. “There’s been a brilliant PR campaign on its part to sell a story that does not really exist.”
John Ashbourne, Africa economist at Capital Economics, a consultancy, adds: “Media coverage of Ethiopia’s manufacturing sector sometimes exaggerates its economic importance. A close look at the country’s economy shows that it is much more similar to its African peers than leaders in Addis Ababa would like to admit.”
Despite the hype, Ethiopia exported just $44m worth of shoes in 2015, for example, 0.25 per cent of those exported by Vietnam and less than the footwear exports of the cordwaining powerhouse that is El Salvador. The east African state’s entire exports of clothing and textiles are worth just a tenth of its coffee exports.’ FT
Ethiopia’s success in attracting foreign manufacturers is often held up as a beacon of hope that sub-Saharan Africa, by far the poorest region on the planet, can follow the well-trodden development model that has allowed the rest of the world to become richer.
Industrialisation has largely been the key to development elsewhere, allowing relatively unproductive subsistence agricultural workers to be absorbed by a rapidly growing manufacturing sector boasting far higher productivity.
With China now slewing off lower valued-added manufacturing jobs in sectors such as textiles and basic electronics as wages rise rapidly in the Middle Kingdom, low-wage Africa has long been seen as a potential rival to the likes of Bangladesh and Vietnam for such jobs, as suggested by the first chart.
While this has yet to happen on any meaningful scale — the continent accounts for just 1 per cent of global manufacturing output — Ethiopia has won plaudits for attracting Chinese, Turkish and US investment into garment and shoe factories, notably from Chinese shoemaker Huajian Group, which employs 4,000 people in an industrial park outside Addis Ababa, the capital.
This had led to the country being described as a regional manufacturing powerhouse. Yet the data show that manufacturing now accounts for a smaller slice of Ethiopia’s economy than at almost any point since the early 1980s.
In 2015, the sector accounted for just 4.1 per cent of Ethiopia’s gross value added, well below the peak of 7.8 per cent in 1997, according to data from the World Bank, as the second chart shows.
Moreover, manufacturing accounts for a smaller share of Ethiopia’s economy than that of virtually any other country in sub-Saharan Africa.
South Africa, Kenya, Ivory Coast, Cameroon, Benin, Malawi, Mozambique and even Zimbabwe all generate at least 10 per cent of their gross value-added from manufacturing, with the likes of Nigeria and Uganda not far behind, as the third chart shows.
Across sub-Saharan Africa as a whole, 10.6 per cent of continental GVA emanates from the sector, according to the World Bank, raising the question as to why Ethiopia is seen as one of the few African nations to have made a go of manufacturing.
“Ethiopia has the smallest manufacturing share of any of the African countries we look at,” says Charles Robertson, chief economist at Renaissance Capital, a Moscow-based investment bank with a focus on emerging markets. “There’s been a brilliant PR campaign on its part to sell a story that does not really exist.”
John Ashbourne, Africa economist at Capital Economics, a consultancy, adds: “Media coverage of Ethiopia’s manufacturing sector sometimes exaggerates its economic importance. A close look at the country’s economy shows that it is much more similar to its African peers than leaders in Addis Ababa would like to admit.”
Despite the hype, Ethiopia exported just $44m worth of shoes in 2015, for example, 0.25 per cent of those exported by Vietnam and less than the footwear exports of the cordwaining powerhouse that is El Salvador. The east African state’s entire exports of clothing and textiles are worth just a tenth of its coffee exports.
Slightly more charitably, Mr Ashbourne does suggest that part of the “Ethiopia story” is that it has been more successful than many of its regional peers in attracting investment from “big brand names” from overseas.
Moreover, while in some African states a fair chunk of manufacturing activity may be a byproduct of those countries’ primary sectors (eg oil refining in Nigeria, processing and packaging of agricultural products in Kenya), Ethiopia is instead producing “relatively high quality goods that are exported”.
“It’s being pulled into these global supply chains, which is not common across Africa and is impressive. Exports have risen sharply, [Ethiopian manufacturing] does employ more people than it used to,” Mr Ashbourne adds, even if job growth since the turn of the century has been faster in areas such as construction, mining, transport and the public sector.
Mr Robertson believes it is Ethiopia’s close links to China that has captured the world’s interest. This extends beyond investments such as that of Huajian and China’s funding of a $4.2bn, 470-mile rail line from Addis Ababa to the port of Djibouti, which opened this year.
More fundamentally, Ethiopia is following the state-led, investment-heavy development model so successfully blazed by China
“What has captured the interest is this comparison with China,” says Mr Robertson. Whereas most African countries are pursuing a private sector-led development model, “Ethiopia has adopted the five-year plan, top-down approach that we have seen in China,” which focuses on rolling out infrastructure such as electricity provision first, then developing light manufacturing, followed by heavy industry.
“People are saying China has grown for 30 years at a very fast pace with a top-down programme. Ethiopia has grown very fast for 10 years [around 11 per cent a year] with a top-down programme. [People] are jumping to the conclusion that Ethiopia is following [in terms of manufacturing growth] when it’s really not,” he adds.
Ethiopia’s rapid economic growth since 2004 does, though, raise the question as to whether other sub-Saharan states, with their private sector-led, bottom-up development models, could or should follow its lead.
Mr Robertson, for one, does not believe the likes of Nigeria would be well suited to the Ethiopian approach. Firstly, Ethiopia can manage a state-led process because it has a strong bureaucracy, something that is lacking in much of Africa but has developed in Ethiopia because the country “has a long history of relatively stable government dating back to 1270,” Mr Robertson says.
Secondly, Nigerians are wealthier than Ethiopians and are used to far more freedom than a government-led, top-down economic model would permit, he argues.
“It is being used as an example in Nigeria but I don’t think it will fit. [Nigerians] are too democratic, too free, too opinionated. Ethiopia has had this regime in place for 30 years and it’s working and they have shown a commitment to relatively low corruption.
“In Ethiopia nobody has anything. Nigerians are three times richer and I just can’t see them being put into the communist box. Ghana, Senegal and Kenya have all moved beyond that stage.”
A protest in Bishoftu, Ethiopia, on Oct. 2. No place exposes the cracks in the narrative of Africa’s rising better than Ethiopia, which is one of the continent’s fastest-developing but most repressive nations. Credit Associated Press
NAIROBI, Kenya — For decades Africa was eager for a new narrative, and in recent years it got a snappy one.
The Economist published a cover story titled “Africa Rising.” A Texas business school professor published a book called “Africa Rising.” And in 2011, The Wall Street Journal ran a series of articles about economic growth on the continent, and guess what that series was called?
“Africa Rising.”
The rise seemed obvious: You could simply stroll around Nairobi, Kenya’s capital, or many other African capitals, and behold new shopping malls, new hotels, new solar-powered streetlights, sometimes even new Domino’s pizzerias, all buoyed by what appeared to be high economic growth rates sweeping the continent.
For so long Africa had been associated with despair and doom, and now the quality of life for many Africans was improving. Hundreds of thousands of Rwandans were getting clean water for the first time. In Kenya, enrollment in public universities more than doubled from 2007 to 2012. In many countries, life expectancy was increasing, infant mortality decreasing.
But in recent months, as turmoil has spread across the continent, and the red-hot economic growth has cooled, this optimistic narrative has taken a hit. Some analysts are now questioning how profound the growth actually was.
“Nothing has changed on the governance front, nothing has changed structurally,” said Grieve Chelwa, a Zambian economist who is a postdoctoral fellow at Harvard.
“Africa rising was really good for some crackpot dictators,” he added. “But in some ways, it was a myth.”
A cafe in Addis Ababa, Ethiopia’s capital, in October. Credit Mulugeta Ayene/Associated Press
No place exposes the cracks in the “Africa rising” narrative better than Ethiopia, which had been one of the fastest risers.
Ethiopia is now in flames. Hundreds have been killed during protests that have convulsed the country.
The government, whose stranglehold on the country is so complete that not a single opposition politician sits in the 547-seat Parliament, recently took the drastic step of imposing a state of emergency.
Many of the Ethiopia’s new engines of growth — sugar factories, textile mills, foreign-owned flower farms — now lie in ashes, burned down in a fury of anti-government rage.
At the same time, a report by the McKinsey Global Institute, an arm of the consulting firm McKinsey & Company, just listed Ethiopia as the fastest growing economy on the continent from 2010 to 2015. The Democratic Republic of Congo, which is also rapidly sliding toward chaos — again, was second.
Political turmoil on the one hand, rosy economic prospects on the other. Can both be true?
“It comes down to how sustained the turmoil is,” said Acha Leke, a senior partner at McKinsey.
In Ethiopia’s case, the unrest appears to be just beginning. Videos show demonstrations of hundreds of thousands of Ethiopians chanting antigovernment slogans, giving a sense of the depth of discontent. The protesters hail from Ethiopia’s two largest ethnic groups, a population of more than 60 million, leading many analysts to predict that this is no passing fad.
Video
Deadly Stampede at an Ethiopian Festival
Police fired on antigovernment demonstrators at a religious festival in Bishoftu earlier this month, triggering a stampede that killed more than 50 people.
It seems the continent as a whole is heading into a tough period. Nigeria, Africa’s most populous country, faces its gravest economic crisis in years because of low oil prices. At the same time, it is trying to fight off Boko Haram, one of the most bloodthirsty insurgent groups on the planet.
South Africa, the continent’s most developed nation, has been wracked by waves of unrest. Troops with assault rifles stomp around college campuses, trying to quell student protests. The country’s currency, the rand, hovers near a record low.
South Sudan, which topped The Economist’s list in 2013 of the world’s fastest-growing economies, is now a killing field, the site of one of Africa’s worst civil wars.
Mr. Leke, one of the authors of the McKinsey report, says that political turbulence can drag down any economy, and that the growth of recent years has not been shared among the people nearly as widely as it could have been. According to a recent report by the African Development Bank, unemployment in sub-Saharan Africa remains close to 50 percent and is a “threat to social cohesion.”
As Mr. Leke said, “You can’t eat growth.”
Still, he says, there have been fundamental — and positive — changes on the continent, like increases in disposable income for many African consumers.
Mr. Chelwa, the Zambian economist, has a different view. The fundamentals of African economies have not changed nearly as much as the “Africa rising” narrative implied, he said, with Africa still relying too heavily on the export of raw materials and not enough on industry.
“In Zambia, we import pencils,” he said.
He also points out that some of the fastest-growing economies, like Ethiopia, Angola and Rwanda, are among the most repressive. These governments can move ahead with big infrastructure projects that help drive growth, but at the same time, they leave out many people, creating dangerous resentments.
In Ethiopia, that resentment seems to be growing by the day.
The trouble started last year when members of Ethiopia’s largest ethnic group, the Oromo, began protesting government land policies. Soon Ethiopia’s second largest ethnic group, the Amhara, joined in, and the protests have now hardened into calls to overthrow the government, which is led by a small ethnic minority.
If you track the news coming out of Ethiopia, you would not be a fool to think it is two totally different countries. One day, there is a triumphant picture of a new electric train, with Chinese conductors standing next to shiny carriages (China remains a huge investor in Ethiopia.) The next, there are grisly images of dead bodies that witnesses said were people gunned down by police.
Photo
A light-rail station in Addis Ababa this month. A report by the McKinsey Global Institute, an arm of the consulting firm McKinsey & Company, recently listed Ethiopia as the fastest-growing economy in Africa from 2010 to 2015. Credit Mulugeta Ayene/Associated Press
Several witnesses said the security forces might be beginning to split, with some officers taking off their uniforms and joining the protests.
The most recent economic data shows Africa’s growth slowing because of political instability and a global slump in commodity prices. Morten Jerven, a Norwegian economic historian who has studied statistics from across Africa, argues that the growth was never as robust as had been believed.
He said that the economic indicators for many African economies in the 1990s and early 2000s were inaccurate, and that the economic progress in the last five to 10 years that appeared to have been sudden was, in fact, gradual.
In other cases, Mr. Jerven said, African governments made bold economic assumptions or simply used fake numbers to make themselves look good. “The narrative had been too rosy,” he said.
Africa Yearning or Africa Struggling might be a more apt characterization, but neither of these is especially new. Whatever narrative emerges should include what Mr. Chelwa calls the continent’s “ghastly inequality,” and the sharp increase in the number of people who are now better equipped with technology and information and are demanding more from their governments.
Of course, it is difficult to apply a sweeping narrative to all 54 countries in Africa, where analysts agree that the picture is mixed. For instance, Rwanda remains stable with new businesses and floods of tourists while its neighbor, Burundi, teeters on the edge of chaos.
Some of the same economic factors that investors cite as grounds for optimism, like Africa’s growing cities, cut both ways. According to Mr. Jerven, rapid urbanization in Africa often leads to sprawling slums, low wages and legions of disenfranchised youth.
“All the economic variables for turmoil are there,” he said.
Ethiopia: Double Digit Growth or Collapsing Economy?
Analysis by Andualem Sisay, All Africa, 8 April 2016
Ethiopian government’s increasing reliance on foreign loans is posing a serious risk of economic collapse, a renowned economist has revealed.
“Take for instance China, which has loaned over $17 billion to the Ethiopian government for infrastructure projects. Our total investment is 40 per cent of the GDP. Our saving is between 10-20 per cent of the GDP.
“We import $13 billion and export $3 billion. They are the ones who are filling all these deficit gaps,” said Dr Alemayehu Geda.
The Addis Ababa and London universities don was presenting his paper on Foreign Direct Investment (FDI) in Ethiopia and Credit Financing.
“What will happen if they stopped such financing tomorrow? What if, for instance, the Chinese government tomorrow says sell for me Ethio Telecom or sell to me Ethiopian Airlines or give me some share or buy my aeroplanes, or I will stop such credit financing?
Strategic items
“The country will collapse, I guarantee you,” he said.
Dr Alemayehu went on: “About 77 per cent of our imports are strategic items. Fuel only has 25 per cent share of the total import. As a result, even if we want to reduce these imports, we can’t. Ethiopia needs to minimise strategic vulnerability.”
The don elaborated giving the example of how the Koreans mitigated against such dependency risks when they used to source 75 per cent of their imports from the US some decades ago.
Dr Alemayehu presented his paper in Addis Ababa at the launch of a two-year 12 series of public dialogue by the Forum for Social Studies – a local civil society, partially financed by the UK’s Department for International Development (DfID).
“The Koreans came out of such vulnerability risk after analysing their situation properly, discussing the issue with their intellectuals and setting long term plans,” he said, advising the Ethiopian government to invest in quality education, skilled labour and improve the negotiations capacity as well as have in place a well-designed policy.
Last decade
Official estimates have shown the Ethiopian economy growing by double digits annually for about a decade now, a figure that has highly been doubted by independent scholars.
The Addis government has been applauded for growing the country’s GDP by around 10 per cent per year for the last decade.
In his paper, Dr Alemayehu indicated that Ethiopia’s external loan included $17.6 billion from China for various infrastructure developments, around $3 billion from Turkish and close to $1 billion from Indian governments.
The World Bank’s data shows that from 2012 – 2016, Ethiopia has taken a total loan of close to $6 billion from the global lender. Last year, Ethiopia for the first time, joined Euro Bond and accessed $1.5 billion.
In addition to loans, reports show that some $3 billion annually came to the country in the form of aid from donors.
Have declined
Ethiopia’s exports have declined from around $3 billion last year to around $2.5 billion this year, as revealed in the recent six-month report of the prime minister to the parliament.
Even though tax collection has been growing by an average of 20 per cent annually over the past five years, Ethiopia’s tax to GDP ratio still stands at 13 per cent, which is less than the around 16 per cent of the sub-Saharan average.
Last year, Ethiopia collected around $6 billion from tax, including $25 million recovered from contraband traders. The figure could have been raised by at least $3 billion had it not been for the generous tax incentives the country has provided to investors, according to latest report of the Ethiopian Revenue and Customs Authority (ERCA).
In only nine months of Ethiopia’s last budget (July 8, 2014 – July 7, 2015), the country provided tax incentives of around $2.4 billion to investors, by exempting them from customs and excise duties and withholding, VAT and surtaxes, according to ERCA’s report.
Financial integrity
A financial integrity report last December indicated that around $2 billion was leaving Ethiopia every year through mis-invoicing and other tax frauds.
When it comes to the FDI coming from China, India and Turkey, close to 71 per cent of their investments in Ethiopia were in the manufacturing sector.
However, job creation, technology transfer and export contribution were insignificant for Ethiopia, which has over an 90 million population dominated by the youth. The country has about 16 per cent unemployment rate, according to Dr Alemayehu.
Between 2003-2012, there were 93 Chinese companies that had reportedly invested $600 million, creating around 69,000 permanent and 79,000 temporary jobs for Ethiopians. There was little contribution to technology transfer and foreign currency generation through the exportation of their products.
According to Dr Alemayehu’s paper, during the same period, Indian investments in Ethiopia created 24,000 and 26,000 permanent and temporary jobs respectively, while 341 Turkish companies operating in Ethiopia created a total of 50,000 jobs.
Though much was being talked about Chinese investments growing in Africa, the Asian giant had less than 4 per cent of total share of FDI on the continent, out of the total stock of $554 billion worth in 2010. Most of the investments in Africa were still dominated by the Western companies, according to Dr Alemayehu.
Prime Minister Hailemariam Desalegn recently told the local media that Ethiopia’s GDP growth was not expected to record a double digit this year and would likely drop to around 7 per cent.
However, his special economic adviser with a ministerial docket, Dr Arkebe Equbay, reportedly told Bloomberg media that the economy was expected to grow by 11 per cent this year.
Foreign debts
The government was now expected to deal with puzzles such as why the economic performance was not as good as in the previous years, with all the generous incentives to investors and huge infrastructure investments mainly dependent on local and external loans?
How to repay its local and foreign debts before the lenders force the government to cede shares in its highly protected businesses, such as, Ethio Telecom, Ethiopian Airlines, the Commercial Bank of Ethiopia, the Ethiopian Insurance Corporation and Ethiopian Shipping Lines is, for sure, the elephant in the room.
But the big question is: How soon will these issues get the attention of a government pre-occupied with trying to feed about a dozen million people affected by drought and dealing with political unrest and conflicts mainly in Oromia and Gondar area of Amhara Region?
Sub-Saharan Africa is experiencing a learning crisis: While more children are attending school, many learn very little. By grade 3, many students cannot recognize a single word of a simple paragraph. At the end of the primary cycle, results from an assessment of math skills in 14 Southern and Eastern African countries found that 60% did not get beyond the designation of “basic numeracy,” and arecent assessment in 10 Western and Central (francophone) African countries found that 60% did not get beyond the ability to answer brief questions by calling upon factual knowledge or a specific procedure (defined by the authors as the “sufficient” competency threshold). By addressing these urgent education issues, governments could ensure that young Africans have the basic skills to build on through further education or on-the-job experience. Other dimensions of human capital merit action. Governments should put in place programs that ensure early child development; young children who start off with appropriate nutrition and stimulation have greater success later in life. Also, employers demand workers with high levels of socioemotional skills, which are also rewarded in household enterprises. There should be attention to developing these skills; for example, “life skills” training for adolescent girls has resulted in higher earnings.
Youth Employment in Africa: what policy makers can do
By Deon Filmer, Ideas 4 Development
Just under two years ago, I—along with a team from across the World Bank—co-authored a report, Youth Employment in Sub-Saharan Africa, which tackled the growing gap between the aspirations of African youth and the realities of the job markets—and what governments should do about it. With an expected 11 million young Africans entering the labor market every year well into the next decade, the findings and main messages of the report remain relevant.
Boosting youth employment is not a one-dimensional task that can be solved, for example, by merely increasing training opportunities—a frequently touted response. The key is to ensure that young people—and other workers—can earn a decent income in whatever work they do. Young people need strong foundational skills—human capital—to bring to their jobs; farm and business owners, entrepreneurs and investors need a conducive environment to create more productive opportunities. Governments must address the quality of basic education and remove obstacles that hinder progress in agriculture, household enterprises, and manufacturing.
Nearly 80% of Africans work in the informal sector on small farms or in household enterprises. Most people in these sectors earn meager incomes. The challenge is beyond unemployment it is that of boosting earnings across the board.
Africa’s impressive economic growth over the past 15 years (about 7% a year) was not associated with large-scale job creation or poverty reduction. Much of this growth was in the extractive industries that are less labor-intensive. Although the formal wage sector grew quickly in some countries (10% a year in Ghana) even in the best-case scenario, this sector will not create enough jobs in the near future. The report featured estimates of what kinds of jobs workers would have in 2020 based on optimisticprojections of overall economic growth, andhigh estimates of the formal sector wage job creation that would be associated with that growth—using the cases of countries such as Bangladesh and Vietnam as sources (Fox et al. 2013). The results were sobering: while the number of jobs created would be impressive, the structure of the labor force would remain remarkably similar to what it is today—low-income African countries would have close to 60% of workers in agriculture, 20% in household enterprises, 13% working for wages in the services sector, and only 6% working for wages in the industrial sector. Demography and the difference between stocks and flows mean that any change will take a long time.
What, then, is a government to do? The report provides a framework for systematically assessing constraints to higher earnings related to the human capital that workers bring to their jobs, and the business environment that ensures that those jobs are productive. The framework looks not just at the formal wage sector, but also at how to increase productivity in agriculture and in household enterprises. It recommends what should be “done now for now” and what should be “done now for results later.”
Key recommendations for policy makers include:
Carry out business environment reforms that attract investment into large enterprises that can create a lot of formal wage jobs, and help make these firms more competitive. Priority reforms include improving access to finance and infrastructure services, improving trade logistics, and easing regulatory constraints to entrepreneurship.
Ramp up efforts to support theinformal sector. Recognize its importance and ensure the legal status of those who work in it. Provide support by ensuring access to (i) land or (legal) space to operate a business, (ii) public services (such as security services) and infrastructure (such as electricity) so that small businesses can be secure and have a predictable operational environment, and (iii) finance so that even smallholder farmers and household enterprises can invest in their businesses to make them more productive.
Ensure that youth have solidfoundational skills. Sub-Saharan Africa is experiencing a learning crisis: While more children are attending school, many learn very little. By grade 3, many students cannot recognize a single word of a simple paragraph. At the end of the primary cycle, results from an assessment of math skills in 14 Southern and Eastern African countries found that 60% did not get beyond the designation of “basic numeracy,” and arecent assessment in 10 Western and Central (francophone) African countries found that 60% did not get beyond the ability to answer brief questions by calling upon factual knowledge or a specific procedure (defined by the authors as the “sufficient” competency threshold). By addressing these urgent education issues, governments could ensure that young Africans have the basic skills to build on through further education or on-the-job experience. Other dimensions of human capital merit action. Governments should put in place programs that ensure early child development; young children who start off with appropriate nutrition and stimulation have greater success later in life. Also, employers demand workers with high levels of socioemotional skills, which are also rewarded in household enterprises. There should be attention to developing these skills; for example, “life skills” training for adolescent girls has resulted in higher earnings.
Promote the dynamic private market forvocational education and training(which includes apprenticeships). Priorities include providing information and facilitating access to existing training for disadvantaged youths as well as well as ensuring the availability of better training options (this does not necessarily mean providing these services). In the presence of active training markets, public interventions need to be selective, performance driven, and evidence-based. One interesting finding is that programs that combine training with access to finance (to start or invest in a business) seem to show substantial promise.
While there is no silver-bullet that will solve the challenge of youth employment, a number of actions can, and should, be taken to ensure that young Africans are well-prepared for work—and that the work that they will engage in will yield substantially higher incomes than it does today.
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
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.
Figure 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).
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.
“Last time I saw you, you looked like apocalypse Hell and then Genesis combined Last time I saw you, you were stripping me of Anything and anyone that was mine
See that’s how I remember you That’s how I remember you
So please forgive me if I never call you home again So please forgive me If I never call you home again” ~~Corneille: I’ll Never Call you Home Again
Yesterday I attended a conference where we met this year’s fellows from the Mandela Young African Leadership Initiative (YALI). The hot topic of course was discussing how to build and maintain a bridge between the diaspora and residents of the homeland, to leverage a superpower that will engender great change. One of them was of the opinion that those living on the continent had been let down…
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