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Ethiopia: The failed State’s Collapsing Economy April 8, 2016

Posted by OromianEconomist in 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.
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Odaa OromooThe TPLF Corruption network

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?


 

http://allafrica.com/stories/201604080259.html

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Bloomberg Business: The Shadow Over Ethiopia’s Construction Boom. #OromoProtests March 21, 2016

Posted by OromianEconomist in #OromoProtests, Africa, Ethiopia's Colonizing Structure and the Development Problems of People of Oromia, Afar, Ogaden, Sidama, Southern Ethiopia and the Omo Valley, Ethnic Cleansing, Land Grabs in Africa, Land Grabs in Oromia, Oromia, Oromo.
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Odaa OromooEthiopian-land-giveawaySay no to the master killer. Addis Ababa master plan is genocidal plan against Oromo people#OromoProtests against the Ethiopian regime fascist tyranny. Join the peaceful movement for justice, democracy, development and freedom of Oromo and other oppressed people in Ethiopia

The Shadow Over Ethiopia’s Construction Boom

By William Davison, Bloomberg Business, 21 March 2016

Oromo farmer on his farmland under land grabs

  • Building glut seen fueling biggest political crisis in decade
  • Fatal land protests near capital have raged since November

(Bloomberg business) — When Ethiopian farmer Mulugeta Mezemir ceded his land three years ago to property developers on the fringes of the expanding capital, Addis Ababa, he felt he had no choice.

A gated community with white picket fences and mock Roman pillars built by Country Club Developers now occupies the fields he tilled in Legetafo, Oromia region, after the 60-year-old said local government officials convinced him to accept an offer or face expropriation. He took the cash and vacated the land, which in Ethiopia is all state-owned.

“We were sad, but we thought at the time that they were going to take the land for free,” said Mulugeta, a father of 12, while feeding hay to cattle a few meters from foundations for the next phase of housing. “We thought it was better to take whatever they were paying.”

As Ethiopia, which the International Monetary Fund estimates saw 8.7 percent economic growth in the last fiscal year, undergoes a construction boom, complaints over evictions and unfair compensation have fomented the country’s most serious domestic political crisis in a decade.

Fatal Protests

In protests by the largest ethnic group, the Oromo, that began in November, security forces allegedly shot dead as many as 266 demonstrators, according to the Kenya-based Ethiopian Human Rights Project. The government says many people died, including security officers, without giving a toll. Foreign investors including Dangote Cement Plc had property damaged.

Ethiopian Communication Minister Getachew Reda said protesters were in part angry at “some crooked officials” who have been “lining their pockets by manipulating” land deals around the capital. Property developers CCD followed legal procedures, paid standard rates of compensation and employed many members of farmers’ families, according to Tedros Messele, a member of the company’s management team.

Cases such as Mulugeta’s have been a growing trend on the outskirts of the capital over the past two decades, said Nemera Mamo, an economist at Sussex University in England. No recent, independent studies have been conducted into how many people have been affected.

‘Beggars, Laborers’

“The booming construction industry has contributed to Addis Ababa’s rapid expansion that’s dispossessed many poor farmers and turned them into beggars and daily laborers,” Nemera said. “The Oromo protest movement opposes the mass eviction of poor farmers.”

Ethiopia’s state-heavy model seeks to industrialize the impoverished nation within a decade by improving infrastructure and combining investment with cheap labor, land and water to produce higher-value goods. Projects for what the IMF calls African’s fastest-growing economy include the continent’s largest hydropower dam, railways and the building of 700,000 low-cost apartments by 2020.

Construction accounted for more than half of all industry in the fiscal year that ended in July after it grew an annual 37 percent, according to National Bank of Ethiopia data. Industry comprised 15 percent of output.

Domestic Supply

Investors such as Diageo Plc, the world’s largest liquor maker, and Unilever Plc are tapping into the expansion by building Ethiopian facilities. Citizens of Africa’s second-most populous nation are using money earned there or abroad to build residences, malls and offices.

The ruling party hasn’t kept pace with the boom by improving governance and the ability of domestic manufacturers to supply the industry, said Tsedeke Yihune, who owns Flintstone Engineering, an Ethiopian contractor that’s built upmarket housing and African Union offices.

“Construction has not been used as it was supposed to, as a means of building domestic capacity, building good governance, as well as delivering the government’s development agenda,” Tsedeke said in an interview in the capital.

More than 70 percent of construction materials are imported, including cables, steel, ceramics, locks, furniture and electrical fittings, Tsedeke said. Ethiopia’s trade deficit increased by $3 billion to $14.5 billion last fiscal year.

Government Spending

Addis Ababa-based Orchid Business Group is another recipient of government capital spending, which the IMF says could double to almost $15 billion a year by 2020. Orchid’s projects include one with Italy’s Salini Impregilo SpA building the Grand Ethiopian Renaissance Dam, said Hailealem Worku, the construction and engineering head.

Cement plants built by companies including Dangote have made Ethiopia self-sufficient in the material, while manufacturing incentives means glass, paint and steel factories will play a bigger role soon, Hailealem said.

The government wants to improve regulations and change attitudes so contractors boost their skills and ethics, Construction Minister Ambachew Mekonnen said in an interview. “The construction industry suffers from a lack of good governance,” he said.

In Legetafo, Mulugeta was paid 17 birr ($0.80) a square meter in compensation. Meanwhile, people were bidding as much as 355,555 birr per meter to rent land in Addis Ababa last year. Mulugeta used the 200,000 birr he received for the plot for expenses including renting more farmland. Two of his children now work as CCD cleaners, earning 40 birr a day.

“We are getting deeper into poverty,” he said.


 

Oromo: Ethiopia’s Construction Boom Marred by Evictions and Unrest

http://unpo.org/article/19034