EYASU SOLOMON

Building an African Infrastructure

2011-12-15T00:32:00.000-08:00

Paul Collier
Key political decisions are needed to build critical rail networks for
a continent well suited to them
THE coming decade could be Africa’s opportunity for investment. Globally, there is a massive pool of investable private resources. Prospects in the advanced economies look bleak, and in the major emerging economies—the so-called BRICs: Brazil, Russia, India, and China—the future is looking more uncertain. Although Africa is not immune to global risks, its continued growth is likely to rest on the potential for further resource discoveries and for commercial cultivation of its vast, underused agricultural land.
New transportation infrastructure is vital to harness these two potential sources of growth. At the top of the list is the classic form of economic infrastructure: railways.
The continent is a huge landmass, well suited to railroads. Yet during the past half-century Africa’s rail network, never very extensive, has shrunk. Even the United States, a huge landmass with relatively low population density, has one kilometer of track for every 43 square kilometers of land. By contrast, Nigeria, home to one-fifth of the population of sub-Saharan Africa and one of its most densely populated countries, has but one kilometer of rail for every 262 square kilometers. Nigeria is not atypical: by radically reducing transportation costs, railways could open up vast tracts of Africa to economic opportunities, especially in agriculture and mining, which many countries are relying on for future growth. The continent needs a decade of massive investment in rail networks.
Politics at play
Railways are hardly technologically challenging. They represent the oldest continuous industrial technology. Africa’s lack of railways compared with other regions is primarily a consequence of politics. Although railways are technologically simple, they are politically complicated—for three fundamental reasons:
• Railways are a primary example of a network industry. The key feature of a network industry is that its operations are so interconnected that it is more efficient to run it as a single entity. This presents an unavoidable role for public policy: how to manage a monopoly provider in the public interest.
• They are a classic example of high fixed costs relative to operating costs. In the parlance of economics, the marginal cost—the cost of producing one more unit—is well below the average cost. For social efficiency, prices should be set around the marginal cost, but for an activity to be commercially viable prices must at least equal the average cost. This tension in pricing calls for a political solution: typically either a subsidy from the government or cross-subsidization from users who are not very price sensitive to those who depend on cheap rail service.
• The mainland continent of Africa is split into so many countries that inevitably rail lines need to be international, especially because many of the countries that would benefit most are landlocked. Yet a transnational network investment is potentially at risk from each national polity. Indeed, each time rolling stock crosses borders a valuable asset moves into a new jurisdiction.
Because African governments have yet to tackle these three political challenges, the African rail network remains inadequate.

Organizing a network industry
Railways are not the only network industry. Telephone service and electricity are other important examples. In Africa phone networks are usually provided by the private sector but subject to regulation; electricity is usually in the public sector and run as a public monopoly. A rail network could be run under either of these models. However, in Africa public ownership and management of the rail network is unlikely to be the best approach. Governments have so many other pressing needs that they cannot afford to finance the huge cost of a rail network—new or rehabilitated. Furthermore, African governments’ resources are already stretched so thin from management of their core functions that peripheral tasks are best organized by the private sector.

The Tanzania Zambia Railway Authority (TAZARA), the rail link between Zambia and Tanzania built by China in the 1970s, offers a salutary lesson. TAZARA today barely functions. Building a line is not enough; it must be well managed and linked to potential commercial users. Currently, many African governments could get financing for more such Chinese-built lines in exchange for mineral concessions, but granting mineral concessions means mortgaging Africa’s limited wealth and should not be done lightly.
Africa’s particular needs suggest that a rail network should be a regulated private monopoly, with both financing and managerial expertise from a private company. But regulation poses difficulties that may be insuperable. It is not possible to anticipate all eventualities: presenting a public rail regulator with a set of agreed rules to be implemented is not enough. To cope with unforeseen circumstances, the regulator must have some discretionary room. But in African governance environments such discretion would likely kill private investment. With the region’s reputation for corruption, even an honest regulator’s decisions would be subject to allegations and expectations of bribery. Once a regulator is given the power to set prices that could bankrupt either the railway company or its customers, neither group would be willing to risk investment.
Fortunately, there is a viable alternative to a domestic regulator with discretionary power—namely, an international dispute settlement board whose members are approved by governments, investors, and customers. This is a standard means of international contract enforcement, and indeed one commonly used both by foreign investors in China and by Chinese investors in Africa. The record of these boards is good. Despite frequent findings against governments, there is a high rate of compliance with decisions. Before investment, a government, an international rail investor, and commercial rail users can negotiate a mutually satisfactory agreement and lock it in by including a contract clause that refers disputes to such a procedure.
Differential pricing
As noted above, because the fixed costs of rail investment are so large, marginal costs are substantially below average. This would generally argue for public ownership, with government using tax revenues to subsidize the fixed costs of the network to keep the price to users around the marginal cost. The importance of such low pricing is not just hypothetical. Although rail networks can open up huge tracts of little-used land to commercially viable agriculture, the amount of usable land is likely to be highly sensitive to transportation costs.

While marginal cost pricing would be very helpful for opening up African agriculture, African governments are in no position to finance such a subsidy. Indeed, even if a government were to provide a subsidy, it might actually deter investors because of the government’s limited long-term credibility. Neither potential rail operators nor potential commercial farms would trust a government commitment to a long-term subsidy.
As with regulation, there are feasible alternatives: price discrimination among users is one. Price-sensitive users can pay only marginal costs, if higher-profit industries less sensitive to transportation costs pay more. In Africa, rail networks have two principal potential users, mining and commercial agriculture.
Many natural resource discoveries will be far from coasts and will require lengthy rail links to move ore to ports. Without these rail links vast tracts of underused land would have no commercial value. The core economic challenge is to organize the rail network in a way that meets the needs both of the extraction industries and of agriculture.
Mining operations require railways and ports. Were there no agricultural users, the mining companies themselves could finance the rail network from some of the high profits generated by extraction. As long as these rail links serve agriculture and resource-extraction users, agriculture need pay only the marginal cost of operation. In effect, the differential profitability of mines and agriculture creates the potential for price discrimination between them.
Mining companies, eager to open up resource-laden lands, have offered to set up such railways, even though these companies are not likely to welcome or desire multifunctional use of the rail network. Mines are accustomed to dedicated services. With the price for agricultural users set close to the marginal cost, the hassle for the mining company of serving other users would far outweigh the benefit from the revenue. For governments, however, a multiuser rail network is very desirable. Especially in light of the uprisings in north Africa, the imperative across the continent is to generate jobs.
Modern mining, which is becoming increasingly capital intensive, generates few jobs and is often damaging to the environment. As a result, the local population may see few direct benefits from mining operations alone. But commercial agriculture can generate both mass wage employment and opportunities for small farmers—a large constituency that will benefit from a rail network made viable by resource extraction.
Who will run the railway?
Such a multiuser rail infrastructure, while attractive, is organizationally demanding. Who will run it? As noted above, it would be beyond the core competence and natural interest of a mining company to run a railway that prices its service for farms at their marginal cost. As a result, even if a mining company were to provide such rail service, farms would likely mistrust it because of its peripheral nature for the mining company. Further, resource endowments are unlikely to be discovered all at once. A single rail company would, in effect, have acquired the exclusive right to any undiscovered minerals. Other resource-extraction companies would not be likely to explore if they had to depend on the single rail company to ship their ore. In that situation, the government would have radically less future bargaining power over mining concessions.

Yet, as already discussed, government control is probably not a good solution either. A third-party commercial operator with core competence in infrastructure but without mining interests appears to be the most credible option. All rail contracts would include an agreement with the government and commercial users—enforced by reference to a dispute settlement board—that builds in price discrimination. The agreement would ensure that the difference between average and marginal costs is covered by the high profits of natural resource extraction, with agriculture charged only the marginal cost.
Such contracts could provide the underlying security needed for a rail company to raise sufficient money to build a rail network, ensuring recovery of the initial investment from income generated by resource companies. Conversely, it would reassure resource-extraction companies of consistent railway service free from political motivation, and commercial farms would be assured low-cost transportation to market.
An international rail line
In many cases the track of African railways must cross national borders. For example, South Sudan, Uganda, Rwanda, Burundi, Zambia, Malawi, and the eastern Democratic Republic of the Congo all need rail links to the coast of east Africa—through Kenya, Tanzania, and Mozambique. Similarly, the most efficient route to the coast from eastern Guinea, which has many valuable minerals, is through Liberia. Yet for the past half-century the governments of these countries have not sustained the necessary political cooperation to make such transnational lines work.

If a rail line is transnational, pricing issues become more complex. For example, the natural resource may be in one country (at the rail head), while most of the agricultural land to be opened up may be in another country. Moreover, because much of the output—ore or agricultural—is for export, the monopoly position of the port gives the government of the coastal country the ability to negate a pricing agreement confined to rail charges by inflating port charges. Another complication occurs because the rolling stock keeps crossing borders. Unless there is a coordinated approach to legal recourse, the engines and cars cannot be used as collateral for loans, which will make the financing cost unnecessarily high. Finally, because the goods transported by the railway cross borders, they are vulnerable to delays because of slow or predatory customs procedures. Hence governments must make credible commitments to maintaining the free flow of goods in transit.
For a transnational rail line to be commercially viable, the risks for investors and customers must be addressed at the start of negotiations. In effect, the governments involved must agree in advance to a limited but clearly specified degree of pooled sovereignty. An intergovernmental rail authority must be established that has sufficient power to negotiate credibly with a rail company and its commercial users. Clearly, the decision to set up such authorities is beyond the realm of ministers of transportation and rests with presidents and parliaments.
The way forward
After half a century of neglect, it is tempting to resolve the need for rail investment by succumbing to the offers of mining companies. While that would undoubtedly get railways built, it would come with two hidden costs. Once a particular mining company owns a rail network, other mining companies will be reluctant to be depend on it, which would give the network builder enormous bargaining power with respect to future resource discoveries. Governments tend to look at the short term, but mining companies have learned to consider the long term. Further, mining companies have little interest in multiuser railways. They are liable to regard low-value agricultural users as a nuisance. In contrast, governments have an overwhelming interest in ensuring that rail networks serve many users. During negotiations, mining companies will doubtless tout their willingness to provide comprehensive rail service to all, but afterward governments may be in a bind if a mining company finds so-called facts on the ground that it says prevent construction of a multifunctional railroad.

In the scramble to negotiate mining deals, African governments risk missing a historic opportunity to transform the transportation arteries of the continent. The past impasse over rail provision did not stem from a lack of financing, but from inadequate political design. Because railways are network industries, they cannot be kept in check by competition nor—because of deficiencies in African governance—by regulation. The solution is to write contracts subject to dispute settlement boards. Because railways have high fixed costs, social efficiency will require subsidies for price-sensitive users. Subsidies cannot come from cash-strapped governments, but can be achieved through price discrimination. In Africa, rail arteries must be transnational, which can lead to intercountry disputes and holdups that would deter private investment. Yet these risks can be addressed by subregional rail authorities with decision-making power.
Africa’s current generation of political leaders has the opportunity to open the physical geography of the region. The decisions they must make are complicated, and much is at stake for the economic well-being of the continent. But forewarned is forearmed.■
Paul Collier is Professor of Economics and Director of the Centre for the Study of African Economies at Oxford University.

9/11 Ten Years On: A Risk Diffused

2011-09-07T06:38:00.001-07:00

by Dr Alexis Crow
In the run-up to the anniversary of the attacks of September 11 2001, the Obama administration is circulating two different messages: one for domestic consumption, and one for its overseas allies.

The first message is aimed at rallying political support, and is likely to tout the killing of Osama bin Laden as an operational victory in the midst of a larger strategic campaign. The second message emphasises that the anniversary of 9/11 is – according to one official – 'not just about us.' The Obama administration seeks to transmit what it calls a 'positive, forward-looking narrative' to its allies. Yet how positive can the US and its allies be in the continued struggle against Islamic fundamentalism?

On the one hand, we have moved away from the presumption (led by the US) that the 'war on terror' was the defining strategic imperative – or the ordering principle for international security – of the era. This is a welcome fact for the very reason that the war on terror was unwinnable. It was exhaustingly costly to those who chose to wage it – from the lives lost, to the material and economic costs, as well as from a political standpoint.

The challenge of global Islamic terrorism now has diffused into a set of diverse risks: it has joined the ranks of older Cold War threats such as nuclear proliferation and state failure – and also the ranks of newer 'post-modern' risks such as cyber-war, climate change, and energy security.

Policy-makers need to respond with a pragmatic, realistic assessment of fighting terrorism in such a complex strategic landscape. It will require creative thinking in terms of resources, infrastructure, and partners – specifically, dynamic relationships with new partners with whom America and its allies have not previously engaged.

Crucially, this means that the US should not view risks such as terrorism through a Cold War system of deterrence, which is currently being hyped as Washington’s innovative strategy on terrorism. This 'new' policy of containment and deterrence is not entirely engaging and creative, and fails to take stock of the complex strategic landscape in which Euro-Atlantic societies operate. Yes, drone attacks are effective and promise immediate effect without lasting commitment, but disrupting transnational and global terror networks, engaging with partners on terrorist finances, halting piracy off the coast of Somalia – all of these risks require new thinking. The US could lead the way by adopting a flexible combination of tools, allies, intelligence, and push to engage with countries such as Russia and China.

Such a policy shift is politically expensive in the West: it necessitates an admission that the single risk of terrorism has been supplanted with many others, and furthermore that risks cannot be managed alone and may require cooperating with non-traditional allies or even the 'bad guys'. Only in such a way can the US and the wider West be 'forward-looking' beyond 9/11.

Libya: AU’s lost opportunity

2011-08-31T04:52:00.000-07:00

By Elizabeth Sidiropoulos

VICTORIOUS: A rebel fighter stands on the back of a truck with a rocket launcher in Muammar Gaddafis Bab al-Aziziyah compound in Tripoli last Wednesday. The ransacking of the compound marked the effective collapse of Gaddafis 42-year-old regime. The AU has played a marginal role in resolving the Libyan crisis, says the writer. Picture: AP

In life realities on the ground often lay waste to the best-laid plans. So has it been for the AU in the Libyan crisis. Since the rebels entered Tripoli on August 21 the hand-wringing around the AU’s marginalisation by Nato during the campaign has reached a crescendo.

In that period, the Transitional National Council (TNC) has been recognised as the legitimate government in Libya by many states, including 20 from Africa; there has been a diplomatic flurry of activity on both sides of the Mediterranean with pledges for reconstruction assistance… and oil contracts; and the Libya Contact Group met in Istanbul – all this before the AU’s Peace and Security Council meeting on August 25 and 26. Has the AU lost another opportunity and how did it come to be much less important than the Arab League on the Libyan question?

First, although the AU had drafted a road map as early at March 10, it failed to win genuine support for it from both sides of the Libyan fray.

Second, the Arab League and Turkey’s support for Resolution 1973 provided, in Western eyes, sufficient legitimacy for Nato. Western and Arab interests coalesced in Libya. Resolution 1973 makes only scant reference to the AU, but emphasises the important role of the Arab League “in matters relating to the maintenance of international peace and security in the region”.

The resolution further notes that member states that have notified the secretaries-general of the UN and the Arab League are authorised to take “all necessary measures to enforce compliance with the ban on flights”. No mention of the AU. Should the three African states on the UN Security Council not have sought to insert the AU into that paragraph?

Third, once Resolution 1973 was passed by the UN Security Council, the AU failed to recognise that if it wanted to stay in the game it would have to escalate its diplomatic engagement (given its absence of hard power) not only with the Libyan parties, but critically with Nato, the Arab League and key countries such as France, the UK, the US, Turkey and Qatar. The Nato sorties, supporting the armed rebels, inevitably shifted the balance of power in Libya.

Fourth, it was extremely unlikely that the Europeans particularly would cede any political initiative to the AU – not only for the oil, but because Libya borders on the EU. African migrants have used Libyan shores as a springboard to enter Europe for a long time; the upheaval engendered by the Arab Spring across the southern Mediterranean exacerbated this, with the concomitant anti-migration backlash in Europe.

Last, while the AU’s Constitutive Act provides for involvement in members’ affairs where there have been gross violations of human rights, the fact remains that the AU lacks the political will (and often the means) to play hardball with some of its recalcitrant leaders who flaunt the very principles that the organisation is meant to espouse.

The West and Arab states were not going to rely on the AU. A drawn-out process of negotiation, while Gaddafi waged a war of attrition on the opposition, was not going to be permissible. Thus, once the “dogs of war” were unleashed, the AU’s road map lost any political capital it may have had as a credible alternative: ostensibly open to the AU’s overtures, Gaddafi would have stalled rather than negotiate himself out of power, and Nato’s entry meant that the rebels sniffed victory.

Lest we forget, Resolution 1973 was adopted in the face of an escalating brutal assault on protesters by an increasingly belligerent Gaddafi, who had failed to heed the calls from many quarters (including the AU) to cease military operations against civilians. Reforms had been promised several times but never carried out. In February and March Gaddafi calculated that the rebellion could be crushed. He was in no mood to negotiate with “rats”.

Furthermore, the Libyan uprising was part of the wave of grassroots uprisings against dictators (mostly West-aligned) that started in Tunisia. Even the Libyan leader had been rehabilitated in Western eyes a few years earlier. The cry in the Arab streets was for an end to these oligarchic regimes that had led to economic hardships.

Ironies abound, of course: the Arab League’s membership is hardly a who’s who of democracy; the TNC’s democratic credentials still need testing; and Bahrain, where Saudi Arabia helped to quash protests against the state, is not the object of the same concerted international response. “Regime change” was inevitable, but probably should not be articulated so unashamedly by Western powers, and the rebels have perpetrated crimes against civilians, too. Yet, these do not exonerate a megalomaniac dictator who did not realise that his time was up.

The AU often hesitates in condemning African leaders who use violence to obliterate internal opposition. Its intention may be to avoid escalation, but when is the right time to escalate the firmness of the dialogue and when is the time to use a combination of tools to effect an outcome? As the AU hopefully assesses its performance over the last few months, these are the tough questions it must seek to understand.

The AU rightly opposes unconstitutional changes of government, but still has to resolve the dilemma of what to do with regimes that provide no real political space for opposition and political contestation.

So what should be the AU’s next steps? Its road map may still be relevant in principle, but developments have overtaken it. The Libya Contact Group has met. The “Friends of Libya” will meet in Paris on Thursday. The AU and six African states (including South Africa) are only observers at the Contact Group. The AU can’t expect to influence outcomes in Libya from the margins of the locus of power or by running a parallel process to that of the Contact Group. It should seek to integrate its high-level ad hoc committee into these processes.

It should also recognise the TNC. Not doing so quickly will make it more irrelevant in the post-Gaddafi Libya and unable to play a meaningful role in pushing for, as its August 26 communiqué said, “an inclusive transitional government, the establishment of a constitutional and legislative framework for the democratic transformation of Libya… and the national reconciliation process”. The latter should be linked to a transparent investigation of atrocities committed by both sides. At the Security Council, South Africa, with Brazil and India, should argue strongly for the UN to reclaim its central role in the process, as the Contact Group reports have argued. If the AU does not take these actions now, its objections to its marginalisation will become a self-fulfilling prophecy.

Asia’s Development Miracle and Africa’s Development Tragedy of the Late 20th Century: Key Lessons

2011-07-15T07:10:00.000-07:00

EYASU SOLOMON
1. Introduction

At the time of decolonisation in the 1950s and 1960s, the level of economic development in most of Asia was comparable with that of Africa. For instance, four decades ago, the per capita income of South Korea was comparable with that of the Sudan in Africa. However, since the 1960s, South Korea has achieved an incredible record of growth to become one of the 26 richest countries in the world and was able to join the trillion dollar club of world economies in 2004 while the Sudan is still one of the 33 Least Developed Countries (LDCs) in sub Saharan Africa (SSA).

The Asian miracle and the failure of SSA in the late 20th century puzzles many development thinkers primarily because unlike the Asian countries, the African countries had relatively large endowments of natural resources and hence were expected to achieve higher economic growth in the post independence period.

Although most African countries which gained independence in the 1960s showed rapid economic growth, their growth could not sustain beyond the first oil shock in 1973. By the early 1980s, African countries already began to show sings of economic stagnation and their external deficits had become so severe that donors and other financers were no longer willing to continue to provide support. Thereafter and following the 1980 Washington Consensus, most African countries were forced to adopt the neoliberal Structural Adjustment Programmes prescribed by the World Bank and IMF. However, the outcomes of these programmes were often controversial and sometimes counterproductive.

Meanwhile the divergence in economic performance between Africa and Asia continued. Average annual GDP growth rates for SSA were 1.7% over 1980-90 and 2.1% over 1990-97 while that for East Asia was 7.8% and 9.9% respectively (World Bank, 1999) (in Masware, 2006). While much of the SSA growth was in agriculture, most East Asian growth was in industry. In SSA, real GDP growth has seen a general decline from about 3% in the late 1970s to about 1% in the following decade recovering only slightly in the 1990s ( Lawrence and Thirtle, 2001). On the other hand, for the rapidly growing Asian economies also known as the high performing Asian economies (HPAEs) per capita income growth has been positive since the 1960s. Thus East Asia became an undisputed development success while SSA became a development tragedy of the late 20th century.

The rest of the paper is organised as follows: section 2 provides a comparative development perspectives for the two regions. Section 3 presents Africa’s opportunities and challenges in the 21st century while section 4 concludes.

2. Africa and Asia’s Economic Performance Compared

As stated earlier, after a relatively higher growth during the first decade of independence, the economies of SSA stagnated while countries in East Asia which were at similar level of development with SSA in early 1960s showed rapid and sustainable economic growth. Over the period 1965-89, real per capita annual growth of SSA averaged less than 0.5% compared to 5% for the high performing Asian economies which included Hong Kong, Indonesia, Malaysia, South Korea, Singapore, Taiwan and Thailand (Maswana, 2006). As a result in 1997, SSA GDP per capita was US$560 as compared to per capita income of US$4,230 for Latin America, $750 for China and $24,710 for the industrial world (Maswana, 2006).

In its 1993, The East Asia Miracle Report the World Bank (in Maswana, 2006) offered number explanations for rapid growth in this sub region. Among these high savings and investment rates, a relatively high degree of equality, high growth rates of human and physical capital, high productivity growth, (including agriculture), and high growth rates of manufactured exports were considered to be key drivers.

Development theory and practice indicates that economic development generally consists of nations undergoing a series of structural transformations from tradition bound, less productive and less profitable activities to modern technology bound, more profitable and value-added activities. According to Clark and Roy (1997) (in Maswana, 2006), this transformation include the change from less sophisticated to more sophisticated agricultural techniques, from an agricultural to a manufacturing, to perhaps service economy, from light to heavy to high tech industries in post agriculture economies.

While structural tranformation was sustianed and rapid in Asia whose manufacturing export jumped from 22% of merchandise exports in 1963 to 87% in 2000, SSA experienced only a slight change from 7% to 20% in the same period (Maswana, 2006). The main reason for such failure in SSA worng governement developeemnt strategy that neglected the agrciutlture sector. Since the 1960s, the level of the public resources allocated to agriculture in SSA has been consistently low relative to the sectros’s size and contirbution to the GDP. Accoridsng to the World Bank (2000) (in Maswana, 2006), in most African countries, the sector recieves less than 10% of the public investment spending while the sector accounts for about 30-80% of the the GDP.

Another reason for the divergence in growth performances between East Asia and SSA was disparities in savings and investment rates. Saving rates nearly doubled in some countries in East Asia, where they averaged 30% of disposable income between 1984 and 1993 , while SSA’s already modest savings rates fell to 10 to 15% (World Bank , 1999) (in Maswana, 2006). During the period 1980-2004, the savings rates in Africa was 16% of GDP, but it was erratic and remained lower than investment rates of 19% for the same period while savings and investment rates in Asia averaged 30% in the same period and the saving rates in Asia have surpassed investment rates in Asia since the 1990s (Maswana, 2006).

In addition, Asia received an increasing capital flows while capital flows to Africa were limited. In 2007, Asia received over 62% of the FDI destined to the developing countries and the region is regarded as the most preferred destination for foreign investment in developing countries while Africa received only about 10% of the FDI flows to the developing countries.

Moreover, Africa’s trade and industrialisation strategy lacked the dynamism observed in Asia and elsewhere. During the first decades of independence both SSA and East Asia followed Import Substitution Industrialisation strategy that was meant to create domestic industrial base that would be able to compete with the rest of the world at a later stage. However, while Import Substitution Industrialisation strategy in Asia created a foundation for a transition to export-led industrialisation which later served as an engine of growth in the region, in Africa the import substitution strategy led to currency overvaluation, development of parallel currency markets and shortage of foreign exchange required to purchase intermediate inputs used to produce both tradable and non tradable goods and hence transition to the export led industrialisation strategy never materialised.

However, there is no general agreement regarding the causes of rapid development in East Asia. As stated earlier, the causes of rapid development in East Asia are considered to be high rates of saving and investment, appropriate politics, policies, and bureaucracy, investment in human and physical capital, and technology, and promotion of agriculture, export orientation, entrepreneurship, the cultural dimension, and the state with active intervention.

Although there seems to be no general agreement regarding the causes of the East Asian economic miracle of the late 20th century, there is a general consensus on the importance of the following factors: high rates of savings and investment, investment in education, capital accumulation, sound macroeconomic management, relatively open trade policy, dynamic agricultural sector, maintenance of relatively equitable income distribution, and political credibility.

However, still there is no single East Asian development model that can be replicated in Africa. Instead, there are different experiences, policies and outcomes. Booth (2001) (in Lawrence and Thirtle, 2001) argues that there are at least three models of east Asian development: These are (a) a manufactured export led, state interventionist model based on the experience of Japan, Taiwan, and South Korea, (b) the freeport commerce and service dominated model of Hong Kong and Singapore, and (c) the natural resource model of Indonesia, Malaysia and Thailand.

The SSA’s success could depend on more noneconomic lessons from Asia, such as the existence of national identity and political commitment to growth with equity. In contrast to the developmentalist and distributive role of the state, especially in Korea and Taiwan, where relatively authoritarian states identified their maintenance of power with a successful economy, the SSA authoritarian states have become kleptocracies (Lawrence and Thirtle, 2001).

Lawrence and Thirtle (2001) highlight further three essential policy options: First, policies to support agriculture are important, but should be based on price incentives and market opportunities. Second, industrial policy may be ill advised because of the difficulty of identifying target manufacturing industries. Finally, trade liberalization based on the removal of domestic distortions would be the best option for SSA.

3. Africa’s Development Opportunities and Challenges in the 21st Century

After a period of falling per capita incomes that started in the 1970s, African economies began finally to turn around from about 1995, with initially modest increase in per capita incomes (Bigsten and Durevall, 2008). Since 2001 the African economic turn around has become real and sustainable with average growth rates of over 6% per annum partly due to the resources price boom but also due to improved economic policies.

The progress has been largely due to improved policy performance, particularly the adoption of less-distorted macroeconomic frameworks, increased reliance on private sector as a driving force for economic growth, and the improvement in governance in many countries. Although the political news is largely mixed, the emergence of more participatory government regimes has improved confidence and modestly increased investment in more sub regions of the continent (UNECA, 1999).

However, SSA is still one of the least developed sub region with massive poverty and underdevelopment. Thus while there are opportunities for SSA to claim the 21st century there are numerous challenges.

Studies have shown that to reduce poverty in Africa by half during 1999?2015, balanced policies to enhance economic growth and reduce inequality and an average annual rate of growth of at least 7 per cent are minimum requirements. Policies and programmes that promote broad-based, labor-absorbing patterns of growth are critical to ensuring that the poor participate and benefit from income growth. Poverty has a root in the interlinked population, environment, and development dimensions and must be tackled accordingly (UNECA, 1999).

Another change is Africa’s ability to join the information revolution. Africa is the most subdivided continent?with 165 borders demarcating the region into 52 countries, 22 of which have a population of 5 million or less, and 11 of which have a population of under 1 million. The limitations of size are very real from demand and supply points of view, and this makes regional cooperation a sine qua non for competitive entry by any individual African country into world markets. There is also a need to broaden the concept of regionalism and accordingly rethink Africa’s regional integration strategy (UNECA, 1999).

Industrialization is the key to increasing Africa’s participation in world commerce and finance, is crucial to the structural transformation of Africa’s economy, and provides the platform for enhancing Africa’s competitiveness in an increasingly globalized economy. Yet the level of Africa’s industrialization remains low, as illustrated by three key facts: first, there are only a handful of countries where manufacturing as a share of GDP exceeds 25 per cent?the benchmark for considering a country as having achieved the threshold of industrial take-off; second, the export composition of African countries continues to be dominated by primary rather than by processed or semifinished products; third, the ratio of public expenditure and private investment in scientific research and development remains minuscule as a percentage of GDP in all African countries (UNECA, 1999).

The continent has to devise polices to attract FDIs, has to rapidly expand human and physical infrastructure and fully participate in the global information revolution.

Africa has to build its capacities to accelerate growth to 8 per cent per annum and sustain it at that level well into the second and third decades of the 21st century. Only addressing these issues will prevent countries which are recovering at present from slipping back into stagnation. Thus, in spite of the recent good news, the challenges ahead for Africa to deepen economic and social progress and to sustain it over the next two decades are formidable.

Africa is a region with a very high economic risk. This means that both domestic and intentional investors demand a very high risk premium on their investment in the continent. Therefore the quality and stability of the economic environment within which economic agents operate depends on the institutional structure and the quality of government. Although the recent process of democratisation and some improvements in the process of governance are encouraging, the low quality of governance is still the most severe development problem in Africa (Bigsten and Durevall, 2008). Africa has to address the governance challenge as a matter of urgency to sustain and improve the current growth opportunities.

4. Concluding remarks

Although SSA and East Asia were at comparable level of economic development during the decades of decolonisation, East Asia quickly outperformed Africa in economic advancement. There is now a general consensus on the importance of the following factors in ensuring rapid development in East Asia : high rates of savings and investment, investment in education, capital accumulation, sound macroeconomic management, relatively open trade policy, dynamic agricultural sector, maintenance of relatively equitable income distribution, and political credibility.

Due to these factors East Asia achieved rapid transformation from non sophisticated, low-valued added economic activities to highly sophisticated high-tech led and highly profitable modern economies. On the other hand, Africa remained the poorest and the most marginalised continent in the world.

However, after more than two decades of decline, the African economies saw a turnaround beginning in mid 1990s. The turn around has accelerated since 2001 with sustained annual average growth in excess of 6%. However, to meaningfully reduce the rampant poverty in the continent in the foreseeable future, the continent needs to accelerate its growth to over 8% per annum.

There is no single East Asia development model that can be replicated in Africa. To achieve and sustain higher growth levels, Africa needs to devise balanced economic polices that put the private sector at the centre of economic growth and job creation, rapidly expand human and physical infrastructure and fully participate in the global information revolution, industrialise rapidly, devise polices to attract FDIs, and address the current severe problems of governance.

References

• Bigsten , A. and Durevall, D. 2008. The african economy and its role in the world economy. Current African Issues 40. The Nordic Africa Institute.

• Maswana, JC, (2006). Economic Development Patterns and Outcomes in Africa and Asia. Congo Economic Review. Working Paper WP04/06-2006.

• Lawrence, P. and Thirtle, C. (eds) (2001) Africa and Asia in Comparative Economic Perspective. New York: Palgrave.

• UNECA, 1999. The ECA and Africa: Accelerating a Continent’s Development Chapter1. United Nations, ECA. http://www.uneca.org/publications/books/eca_and_africa/chapter1.pdf.

South Sudan: Opportunities and Challenges

2011-07-15T07:04:00.000-07:00

by Alex Vines
When South Sudan becomes the world's newest state on the 9 July, the opportunity is there to build a more sustainable and peaceful relationship with Khartoum and its neighbours. Joining the UN, African Union and other international clubs (including the Commonwealth) will be the easy part. Establishing a fully functioning state is a long term project. When the celebrations are over, South Sudan will begin the difficult task of state building.

Few new states founded since decolonisation have faced the developmental challenges of land-locked South Sudan, a state which lacks infrastructure and economically is dependent on oil produced near the northern border, to the tune of around 95% of government revenue. Its vast agricultural potential has yet to be exploited.

The challenges are huge
Peaceful co-existence with the North is critical. Khartoum needs to honour its promise to be the first to recognise the new state. A long shared history and ongoing commercial, cultural and political links mean that the two Sudans will remain intimately entwined.

But internal politics in North and South Sudan have the potential to sour the relationship between the two states. The recent fighting and bombing of villages in South Kordofan in North Sudan will take on an international flavour after July 9. This is an area with considerable support for the Sudan Peoples' Liberation Movement (SPLM) who are the governing party in the South but will remain active as a political party in north Sudan. Links forged over decades of war with areas like the Nuba Mountains will continue to be relevant for Southern politicians.

The legacies of the civil wars in Sudan remain unaddressed. Rival leaders who fought the Sudan Peoples' Liberation Army/Movement in the south have been paid off or given grand titles to maintain their support. However this is not a sustainable long term strategy. Disgruntled commanders in the South have already rebelled against the government in Juba and this trend may well continue. South Sudan will need to create space to peacefully and openly manage dispute and expectations.

The prognosis is not all bleak
Many doubted that Sudan would make it through the six years of transition mandated by the Comprehensive Peace Agreement without a return to full scale war - that it did is a testament to the benefits of peace. South Sudan will find new partners willing to make investments and sell goods and services. Tapping into resources, financial and human, especially from East Africa may give South Sudan a quicker route to prosperity.

South Sudan's independence is a historic moment. It offers citizens a unique opportunity to put an end to over a century of conflict and marginalisation. International support can help state building but its sustainability will only come from the political vision and hard work of the South Sudanese themselves.

REVISITING ETHIOPIAWINET!

2011-04-25T00:54:00.000-07:00

By Mammo Muchie

NES COMMENTARY. No.36

Network of Ethiopian Scholars (NES)

April 24, 2011

“This is my plea to the new generation of African leaders and African peoples: work for unity with firm conviction that without unity there is no future for Africa…I reject the glorification of the nation-state, which we have inherited from colonialism, and the artificial nations we are trying to forge from that inheritance. We are all Africans trying to be Ghanaians or Tanzanians. Fortunately for Africa we have not been completely successful…Unity will not make us rich, but it can make it difficult for Africa and the African peoples to be disregarded and humiliated. And it will therefore increase the effectiveness of the decisions we make and try to implement for our development. My generation led Africa to political freedom. The current generation of leaders and peoples of Africa must pick up the flickering torch of African freedom, refuel it with their enthusiasm and determination, and carry it forward.”Julius Nyerere, First president of Tanzania

‘The present consolidation of African states within the former colonial frontiers runs counter to much of what had been both predicted and desired during the colonial era. It was widely assumed that as soon as Africans came to freedom they would sweep aside the arbitrary boundaries imposed by the imperialists which cut across tribes and overrode the dictates of geography and economics. The continent had been partitioned to meet colonial convenience, but it would now be reshaped to realize its natural contours and return to its natural essence.’( Rupert Emerson,1962)

“...Constructing a nation from scratch: We know we don’t have the knowledge. We know we do not have the resources. We know we do not have the experience. Our conclusion is: let’s face it.” Isaias Afewerki, current president of Eritrea (quoted from National Geographic, June 1996, p.87)

Summary

Failure to defend Ethiopia’s history, is also a failure to live up to the worthy expectations of all those who derive so much spiritual energy from the idea of Ethiopia as a free provider to the world of the ‘resistance-liberation logocentric imagination’ that is much needed as a tangible resource still in vulnerable and penetrable Africa. Ethiopia is synonymous with the very idea of a de-colonising imagination. Its history of successful resistance is the timeless bearer of this alternative decolonising logo for the spread of the African world’s liberation imagination. Ethiopia- as an anti-colonial symbol- is very relevant today, as it was yesterday and will be too in the future. The significance of Ethiopia’s history now, at a time when Africa is being re-threatened with war needs to be appreciated. Its importance during this time when the former colonial powers are returning to Africa with military aggression cannot be lost to both those willing to resist the new aggression and those who commit this latest aggression. At the core of Africawinet is this Ethiopiawinet that is a bearer of dignity and resistance to the repeated humiliation Africa is confronted with by external aggression. Ethiopiawinet is at the core of the African renaissance. It is also at the core for ending Africa’s repeated humiliation. This is because African unity can be anchored with a value and dignity that Ethiopiawinet attained over 500 years of resistance. This achievement by the Ethiopian-Africans that resisted all forms of humiliation is a positive data for building Africa’s united future and to bring back the African unity first agenda to the fore today. It is for these reasons we respect our ancestors, whatever their shortcomings, and problems they were unable to solve in their life times and left behind for future generations to settle. They left the timeless inspiring resources to build Africa’s united future. The positive data they left us in the Ethiopian history remains to this day a relevant asset to build Africa’s much united future. Ethiopians now and in the future must always value and treasure this great historical achievement and not play the current ugly, divisive and cynical ethnic games that the selfish ruling elite play by dividing and degrading this core provider of Africa’s overall liberation imagination into vernacular-ethnic enclaves. Ethiopians as Africans and not as degraded ethnie must unite and strive to make ethnicism as a past by coming together with foresight and sense of history. They should do it now and not tomorrow to restore the historical imagination that will make a difference to the African world as a whole!

1. What is Ethiopiawinet?

Ethiopiawinet should be built and developed from the following characteristics Ethiopia has to this day:

a) Long history-perhaps as long as Persia’s and China’s,
b) An internally generated civilisation (written, art, architecture, music, religion and so on),
c) A history of resisting and scoring victories against economically and politico- militarily superior forces,
d) A unique psychological make up where the notion of the divine and the sacred graces every activity that the people engage in.

The individual, the state and the nation use for their lives divine presence whether they are Christians, Muslims, Judaic and even Pagans. The state had its own ethos and had its own ‘Fetah Negist’ and ‘Kibre Negist.’ In war we note how the idea of the divine is invoked to give courage to the troops when they charge(e.g. Giorgis’s participation in Adwa!) and in victory the people show humility by referring that all their power is due to God.

Whether we like it or not religion is a way of life to the rural majority of the population. And the change we want, the modernisation we seek is to make life better for the majority of the rural areas. We do not go and preach Jeffersonian democracy or Marxism to them. If we are serious we go and learn from them and build on their beliefs and make modernisation sensible by translating it into the language and way of life they are used to. This is how Japan, Korea and others did it by appreciating their context but not rejecting it like the strange ruling elites that replaced the traditional system are doing now!

Even China with its Marxism did not reject Menicusian, Confucian, Taoist and Buddhist values which the population had. They tried to Sinnify their modernist weapon Marxism so that the people can embrace it. Like everything else which came into contact with China, Marxism became absorbed rather than the other way round! They call it Marxism which Chinese characteristics and in reality in China Marxism was not used like in Ethiopia. Mao Tse Tung started by investigating first the peasant movement in Hunan where he was born, not by throwing half-baked and non-comprehended phrases from Lenin and Stalin. He did not select phrases that insult to persecute and even kill his comrades as it happened in Ethiopia. Never forget in Ethiopia after people were killed, the strangest things also have taken place where apparently along with the dead body was placed 'I was a dog' and I deserve to be killed -- or some strange ani-Ethiopian and anti-humane things were done! When a person dies in Ethiopian culture, one always tries to remember the good the person did by trying to forget the bad the person did. This is the noble culture that was inherited from Ethiopia’s past that was abused by doing these strange things to dead bodies!

There is an Ethiopian value system from our tradition that we need to bring back and blend with modernisation. The core ideas are the four key principles of Ethiopiawinet. We need to treasure them, not fight Ethiopiawinet! What makes the person from the South to those in the North connect mysteriously is this shared experience which was passed on from the wider Ethiopian culture confluence and communication.

2. The Mistakes of our Generation

Our generation was engaged in intellectual copying. We ignored both
history and reality and embarked on a journey that has cost Ethiopia
dearly. Basically we said because Marx, Engels and Lenin are right,
Emperor Twedros, Yohannes, Menelik and Haile Selassie are wrong. This was a very dogmatic logic, ignoring both historical evidence and reality. Did we not pay a price badly for this. We still do. We better ground ourselves from our own history, our own challenges and how to change society by a process of grounded appreciative theorising. We did not do this. We need to bring back the anti- colonial and anti- imperialist and
nationalist imagination coming naturally from Ethiopia’s history that continues to be treasured by Africans the world over.

Our generation rejected this by mounting two major myths: a) the Dergue employing Jacobin-Stalinist terror tried to force its hackneyed “Marxism” down the throat of the bewildered population, b) the various ethnic based fractional movements echoing rhetorics from China, Albania, Vietnam and so on tried to create ideologies of Tigreanism, Eritreanism, Oromoism and recently Amharism and anything and everything but Ethiopianism. They even have ethnic flags. We have many flags in Ethiopia now, not one flag that I see every day also in much of Africa and the rest of the world. Others are proud to use the Ethiopian flag, whilst the ruling ethnic elite diversify the number of flags to entrench ethnicism and undermine Ethiopian history.

Ethiopia is in a strange paradox: Ethiopia reminds me of Witgestein’s prescient remark of a nation being run by elites who are trying to disrupt its future by climbing through the chimney and the window of ethnic fragmentation, when all along the Ethiopiawinet as Africawinet door to build its glorious future has been wide open.

What is wrong with holding on and inheriting our Ethiopia and add modernisation, renewal and democratisation without breaking the framework and subtracting the nation and parcelling the state? Do we need to regress by relying on the politicisation of culture, language and blood to blackmail our way into power with Ethiopia as it is or by breaking it up altogether?

I believe the best and most possible cultural rights and expression for all the ethnic communities without subjecting them to ethnic cleansing and other violence is feasible with a healthy Ethiopiawinet. I do not see why we should not organise by affirming Ethiopawinet and maintain active local engagement wherever we come from. The key is to democratise the state, individual and the nation by affirming and not being condescending
to the past.

The theory of the nation which decomposes Ethiopia by weaving the myths of Tigreanism, Eritreanism, Oromoism and so on goes counter to the core experience of the people, their long history, tradition, character and above all their historically evolved nationhood and state formation.

The Lenin-Stalin notion of the nation which the fractionalisers have imported their divisive politics from to Ethiopia is too scholastic, mechanistic, and deterministic. Itemising factors of language, territory, psychological make up and unleashing every petty nationalist bigot to search how his ethnic group might fulfil one or the other factor in full or in part is one of the most unattractive ventures which corrupts science and social practice at the same time.

Neither the ethnicism of Tigreans, Oromos and so on and nor Stalin’s shopping list definition of a nation are relevant to the Ethiopian situation. They cannot be a higher reality to the experience of our people. An experience where there was injustice along with civilisation, a history of epic resistance and a unique psychological make up involving the concept of the sacred in the every day living of all Ethiopians. The attack on this divinely graced Ethiopianet ” wukabi gefafi new” (is de-spiritualising/demeaning!)!

It has been said that the longer we look back in the history of a nation, the further we can look forward or forge ahead in building a collective future. It has also been claimed that history is to a nation as a memory is to an individual. For an individual to lose memory is to lose a grip of reality. It has been a maxim held by African sages: ’They lost their history, so they lost everything.’ A nation, if it wishes to remain a nation must not be denied its right and indeed privilege to make a conception of history that
yields direction and a future and insulates it from falling into a directionless and chaotic path like present day Somalia.

Arguably, contemporary challenges and demands must be taken into account into a nation’s history-making processes, but they must also be confronted to avoid the mindless rejection of Ethiopia’s historical achievements and the intelligent learning from the innumerable failures that is necessary to do individually and collectively as a people. Anything made at the expense of making a nation lose its historical identity, which is not, incidentally constituted from more than the sum of the arithmetic additions of a sum of languages, religions, territory, number of people in an ethnic group, and other variables is to undermine the ontological foundation of Ethiopia as an idea, a dream, project and nation.

Those who wish to opt out make not only themselves suffer, but also those who wish to remain with a positive and constructive rather than destructive and negative appreciation of Ethiopia’s long history. We have seen what came of Eritrea after leaving Ethiopia? We were told Eritrea would be
the South East Asian tiger, but is it that now? Is that what has become of Eritrea by the EPLF’s and TPLF’s gratuitous saying good bye to Eritrea’s core history which is tied with an umbilical chord with Ethiopia’s long social-economic history. History provides self-knowledge to a nation and that self-understanding is a necessary condition to undertake any meaningful development. Lack of consciousness of a nation’s history is not simply an intellectual failure. It can be a moral failure as it can expose unnecessarily a nation to unpredictable danger and suffering. We owe it to our ancestors who bequeathed a nation with history to avoid extremism, negotiate out of our conflicts, and find mechanisms to make social peace amongst individuals, communities and personalities.

It is with a larger purpose and depth of thinking, commitment and dedication that we should cherish both the long memory and current meaning to us of being Ethiopian. There is intrinsic merit to preserve this ancient nation, and not give in to the degrading mantra of ethnic enclosures that has degraded civic Ethiopian citizenship to a particularly virulent and limiting concept of the ethnically defined and vernacularly fenced off citizen. This primordially and biologically condemned citizen must be fully liberated to emerge as the Ethiopian citizen par excellence. There can be no compromise on the Ethiopian and African framework for citizen expression and engagement. Everything is negotiable once the framework is accepted. There can be no negotiation with those who arrogantly and impudently call Ethiopia a fiction and an invention. Without the idea of Ethiopia, there is no idea of a future. Let us not forget that Ethiopia was the first non-European country that defeated a European power. The Japanese sent delegations to learn how Ethiopians organised to defeat a European imperial power. Many Africans in the Diaspora from America to the West Indies were inspired to continue the struggle for liberation owing to this historic achievement. Ethiopia can achieve even more by doing away with tyranny and poverty for good provided it overcomes the pettiness of its politics and reach out to the grand vision of historical presence.

I ask all of you to memorise!

The world fears time
Time fears history
History fears Ethiopia!

Mammo Muchie, DST/NRF Research Professor of Innovation Studies, Also Professor DIR, Aalborg University, Senior Research Associate, SLPTMD, Oxford University,UK.
He can be contacted from any of the links below!http://www.nesglobal.org/symp125/ http://www.nesglobal.org/wshop/node/6
http://agda.uonbi.ac.ke
www.ajstid.com
www.nesglobal.org

The dilemma of exchange rate devaluation arrangements as solution for inclusion

2010-09-07T06:47:00.001-07:00

By:-Eyasu Solomon
- Eyasusolomon@AOL.com
Exchange rate Volatility is a measure of risk, whether in asset pricing, portfolio optimisation, option pricing, or risk management, and presents a careful example of risk measurement, which could be the input to a variety of economic decisions. What was surprising and interesting about Ethiopia's move is that the devaluation was not undertaken under the usual duress of “macroeconomic adjustment.” Devaluation helps because it increases exports and reduces imports, thereby increasing the foreign exchange position; and it also reduces domestic spending and brings it more in line with a country’s production.In this instance, however, the devaluation seems to target structural change, to boost the tradable sector so that it can provide the basis for long run growth. Volatility of exchange rates describes uncertainty in international transactions both in goods and in financial assets. Exchange rates are modeled as forward-looking relative asset prices that reflect unanticipated change in relative demand and supply of domestic and foreign currencies, so exchange rate volatility reflects agents’ expectations of changes in determinants of money supplies, interest rates and incomes. I see it differently. Tradable sectors and exports can indeed be key for development. And Africa’s tradable sectors are handicapped by aid and natural resource revenues, which tend to promote non-tradable sectors and encourage consumption over production As Ethiopia considering implementing changes in their development strategies, now is an opportune time to investigate the issue of weather alteration, in exchange rate arrangement have an effect on economic growth or to what extent exchange rate volatility may be responsible for variation in the rate of economic production. Because such moves are accompanied by increase in the volatility of both, nominal and real exchange rates. So, three slightly different takes on this Ethiopian move would be the following. First, this devaluation can be seen—not as actively favoring or even subsidizing some sectors as it would be in the case of China, for example—but as offsetting a previous distortion (aid and resource revenues). Second, instead of viewing this as creating investor uncertainty, it can perhaps be seen as a credible and durable pre-commitment to promoting structural change (provided of course future actions are consistent with this move). The private sector can be assured that there would be durable advantage in investing in the tradable sector. Finally, the devaluation is heartening if it reflects a realization on the part of African policy-makers that the key to development is structural change but one that is brought about in a market-friendly manner rather than in the dirigiste manner of the past.
Real exchange rate uncertainty can have negative effects on both domestic and foreign investment decisions. It causes reallocation of resources among the sectors and countries, between exports and imports and creates an uncertain environment for investment. The most important reasons for a devaluation to trigger an aggregate demand contraction include: a redistribution of income towards those with high marginal propensity to save, a fall in investment, an increased debt burden, reduction in real wealth, a low government marginal propensity to spend out of tax revenue, real income declines under an initial trade deficit, increased interest rates, and increased foreign profits On the other hand, aggregate supply may suffer after devaluation because of more expensive imported production inputs, wage indexation programmes, costlier working capital. Frequent devaluation stimulates speculation, leading to confidence erosion.Such
practice of continuous devaluation not only result in distortions in income, consumption, industrial growth and public finance, but also disturb the harmonious blend of internal and external balance, affecting both monetary and fiscal indicators,e.g. exports, imports, manufacturing growth, money supply and so on. Demand for exports depends on economic conditions in foreign countries, prices (relative inflation and exchange rate), and perception of quality, reliability, and so on.According to the orthodox approach, the devaluation enhances competitiveness, increases exports and bends demand toward domestically produced goods, thus expanding the production of tradable. For demand and supply side contractionary effects “Imports” measuring purchases from abroad, add to well being but may displace domestic production and drain financial resources. Changes in imports prices reflect changes in foreign prices, exchange rates and quantity.
The lack of zeal of domestic corporate executives to engage investment in the industrial sector exposes finance capital to the hazard of foreign invasion, which implies thatforeign investors could take this advantage to expropriate the wealth of the nation, and thus hamper the strength of the Ethiopian economy because capital is mobile, and globalization is about interconnectedness and interdependence as the finance capital available in the economy is being moved at will to the economy of other states. Thus, globalization has brought about the domination of the Ethiopian economy since its basic export is woven around raw materials (the basis for production and further production), whereas export in Ethiopia promotes economic diversification abroad and restricts diversification in the domestic setting, placing the Ethiopian economy in an uncompetitive space in the global trade circle. Currency devaluation on the basis of a certain economic policy is something every nation does occasionally, more so amongst the developed nations than developing ones with the exception of China. Some 20 years ago Canada did it to stimulate the economy to pull it out of the early 1990s severe recession. Canada devalued the currency by 45% at some point. Then again, Canada is economically integrated with the US, over 80% is exported to the United States, and for that reason the devaluation was understandable. The timing also did have something to do with, a new trade regime was on its way being implemented (NAFTA) US did not mind for the border town States benefited from the exchange rate advantage of importing Canadian goods and products to present it for the voracious appetite of US consumers.
Although the depreciation would take only a year and half but raising it back to the level it was prior to the recession, it would take over seven years. Because it would be very risky for the confidence of the Canadian economy to maintain that low exchange rate after the economy got its wing to fly, foreign investors cannot get a good return for their PDF created with pdfFactory Pro trial version www.pdffactory.com investment if that low exchange rate was maintained, so instead of attracting few more investors the currency devaluing nation can lose many more investors. So, one has to show confidence on their economy by maintaining strength on their currency to reflect a good management and command.
Given the above example its not a bad idea for Ethiopia to devalue BIRR, however the trade deficit Ethiopia has is far greater to compensate by the export increase it will have no matter how large the export is, because Ethiopia is an 80 million nation with trade deficit is into billions. So devaluing the currency may encourage one time (short term) investors to come and take advantage but they will leave once that advantage runs its course. Those who buy real estate would benefit from the exchange rate advantage it will give them, but all others things will rise immediately after. As illustrated above, Ethiopia is an import economy nation. In the long term the country could lose its ability to maintain that same juice stimulant for an extended period of time knowing the way I know Ethiopia. China on the other hand can manipulate its currency as much as it wants for however long it desires for it has a huge reserve, essentially driving the world currency exchange rate. Alluding to the fact, if one controls the US currency, one has the world in their pocket. Ethiopia does not have excessive reserve like China does, as a matter of fact Ethiopia is running a yearly deficit economy, which means it cannot do what China does and come out unscathed. It may help it for a one time currency collection by giving the labor of the citizens to the foreign investor accumulating the extra 20% and using that extra juice the one time foreign investor can increase the margin of profit by a 20%.
However, that’s where it stops. The nation would have to devalue its currency furtherdown in order to get another stimulant juice; the question then becomes where the devaluing stop does. The basic adjustment policy dilemma may be easily illustrated by the simplest of all open economy frameworks where:exports, imports, aggregate domestic output, consumption, investment and government expenditure. Matters would be relatively clear cut if there were well defined correct and incorrect policies relating to macroeconomic stability, microeconomic efficiency and openness.
A bad harvest, or a fall in export prices may reduce both export revenue and taxrevenue. Or, where sovereign debt is denominated in US dollars, an increase in worldinterest rates or an appreciation in the US dollar will lead to an increase in vernment expenditure expressed in domestic currency. Apart from such exogenous shocks, it may also be the case that the characteristics typically found in Ethiopia make it more of a challenge to conduct macroeconomic management. It may be more difficult to control government expenditure, to increase tax revenue, to avoid monetising fiscal deficits, to control the supply of money and to pursue inflation targeting. Exchange rate depreciation may also be less effective if the inflation it induces impedes its relative price effect, if foreign trade price elasticities are relatively low.
Similarly, the counter-inflationary effects of overvalued exchange rates are unlikely to offer sufficient compensation for the erosion of international competitiveness and the expectations of devaluation to which they lead. Policy prescriptions relating to structural adjustment and the supply side. There is less consensus surrounding the causes of economic growth and the effects of openness, with the consequence that there is more debate and disagreement about what policies will increase aggregate supply in the long run. What is the appropriate role of the state? To what extent will privatization stimulate PDF created with pdfFactory Pro trial version www.pdffactory.com growth? Which elements of government expenditure show the biggest return in terms of economic growth? What is the impact of openness and trade liberalization on growth?
What is the connection between financial liberalization and growth? In what order should Ethiopia exhibit a relatively high degree of export concentration on commodities whose price in world markets is often unstable. At the same time, where the price is denominated in US dollars, variations in the price of the dollar may be another factor in determining how the international purchasing power of a specific volume of exports may change.
So where does this leave us? If it seems to imply that the issues are highly complex, that our understanding of them is still limited, that there is a potentially explosive combination of economics and politics, and that there are no easy answers, then it is because this is exactly what the situation is. But at the same time the absence of easy answers is not an argument for policy inaction. It is a matter of learning by doing, trying to avoid doing harm, and gradually evolving towards a better outcome.The technical (and political) question to be raised is the following: is it really possible – in order to raise and maintain economic growth at 11-15% per year for a longer time - to have a much better exchange rate for the current account balance and, at the same time, a lower nominal interest rate, without igniting inflationary pressures in the Ethiopian economy?
The answer – as always in macroeconomics – is maybe yes. It all depends on inflation expectations, exchange rate expectations, monetary and fiscal policy.Any simple macromodel normally suggests that, in an open economy, inflation is determined by expectations of inflation, the output gap and the rate of exchange devaluation. Additionally, it is well known that the interest rate differential with respect to the rest of the world tends to reflect the expected rate of exchange devaluation. Furthermore, economic growth depends on the existing output gap, as well as monetary and fiscal policy ( in addition to long-term trends, of course, such as productivity and demographics).Even a simple model like this shows that the major challenge is to promote a devaluation of the currency ( under fixed-but-adjustable rates or under dirtyfloating rates) which might be able to bring the expected rate of future exchange devaluations to zero or even “negative” figures. And, at the same time, it must represent a real devaluation, with a small impact on domestic inflation. Is that possible? Again: maybe yes.

“Merkato”, The Home of Two Religions

2010-09-03T05:29:00.002-07:00

During the Jumaa prayers, Islamic parching (hutba) will be presented by the Imam. Sometimes it coincides with the sound of the Mass prayers from the church. The faithful will be disturbed by a mingled and distorted voice from the two loud speakers. St. Raguel’s Church has a big building on one side of the fence. The shops in the building exhibit the same confusion.
Mohamed Selman-Addis Ababa)

This land, Ethiopia, is a piece of land on which the fear of God (Taqwa, in Arabic) overshadows; if anyone wants to prove this, just visit Piassa and Merakato, where gold is being sold like a pile of grain. I remember one of Addis Neger Newspaper’s articles titled, “Why Do The Ethiopian Poor Not Rob?”–that article had listed “the fear of God” as one reason why the Ethiopian poor do not rob.

There is a saying about the skills of the Merkato thieves: “they can steal your tattoo without touching you”. But these same thieves are known for one thing–they will return your useful documents if they find them in their loot, and try never to kill while stealing. I think these guys would prefer not to steal for their living. What can I say, I am proud of my country’s God-fearing thieves!

Ethiopia is recorded in both of the holy books of the great religions. Repeatedly, while we cannot find the US or the UK even once, Ethiopia is known for giving refuge to the disciples (Sahabas) of the Prophet Mohammed in the 7th century. When we speak about Ethiopia being named in the Bible repeatedly, we have to know that it includes Merkato–just because Merkato is found in Ethiopia.

Among my childhood memories are the “thief beating scenes” in the great Anwar mosque. In the moment when the barefoot faithful go down and up in an act of worship, the shoe thieves are on duty. Some unfortunate thieves will be caught by the faithful and dealt mob justice. Everyone tries to beat the unfortunate thief at least once. Watching heavy people girding up their ceremonial robes to use their hidden acrobatic skills gave me a secret pleasure. These scenes also gave me a chance to contribute to the beating. I liked this scene so much that I even invited my Christian friends to watch it.

They followed me to the mosque, for they also liked this ‘ritual’ In my childhood home, Merkato, even if they were not many, I had Christian neighbors. As the famous song of Teddy Afro goes, “Is it not Raguel (the church), Anwar’s (the mosque) neighbor?” When the time came for Ramadan fasting, our friendship strengthened. We celebrated the “Iftir” feast together. At dusk we went to my home to share the dates, the Asambusa, and sometimes the soup ready for the evening feast. They even sometimes helped me keep the fast by not eating their breakfast until mid-day (of course, this may sometimes have been because they lacked something to eat). We sometimes made fun of each other’s fasting cultures. They teased me, saying, “What is the difficulty in fasting in the day after eating in the night?” “How could you call this a fast since you eat shiro and lentils?” I remember that I was always the winner because my friends ate meat and other animals products so rarely that it was easy for me to mock them in return, chiding, “you are always in the Lent season!”

My friends were happy during Ramadan because we could buy dates and enjoy them. They also repaid me during their Epiphany and Buhe celebrations. I was with them, playing the harmonica, on the day of Epiphany. The celebration of Buhe was also, for us, a day on which we collected money by singing the season’s traditional songs. It was only much later that I discovered that Buhe has a religious meaning. We celebrated those days not as religious holy days in which we acquired spiritual benefits; rather, we celebrated them as cultural feasts.

I have no idea how the word “compromise” started to be used in framing the Muslim and Christian relations in Ethiopia. In my understanding, the Muslims and Christians in Ethiopia live together with love rather than compromise. I don’t like this word when it is applied in this context. I can clearly recall those relations tied with love from my childhood memories. Most of my childhood friends are now slipping out of religion. But some are strengthening their faith.

Nowadays, I hear that singing the Buhe traditional songs is a Christian role. I urged by many not to have a friend who is from a different religion. The spiritual books I read sometimes have no love in them. Most of the literature contains warnings of the coming dangers of my religion and urgings of vigilence against them.

The books that comprise the counterpart are also as dangerous as these ones. Some priests are preaching argumentative sermons. The same messages are being printed on T shirts, CDs and books. My Merkato today is full of these controversies.

Ramadan and “Filseta”: one side of two coins

In these fasting seasons, when the faithful turn their face to their God and the business of the fasting days mounts, Merkato hosts mobile churches and mosques carried by vehicles. Sermons broadcast by different loudspeakers adds chaos to the already busy marketplace. Gospel songs and Menzumas (Islamic songs) spread without limits. These “mobile churches and mosques” Coax bystanders with their proclamations–“buy this cassette and you shall be saved!” Similarly, they strive to increase the numbers of people who go to “Genet” and “jenet’.

The 16-day fast of the Orthodox Church, Filseta Maryam (the assumption of Mary), is the second greatest fasting season–next to Lent.–for summoning the believers to church. Many Christians wearing netelas (Ethiopian traditional cloth) march to the church of St. Raguel. Multitudes of Muslim believers, who number a little greater than the Christians, also stride to the neighboring Anwar mosque. The reason for this is the Muslim’s fasting season, Ramadan. The priest’s mantle and the Muslim cape, the Christian netela and the Muslim robe go together until they reach their respective worship places. This scene reaches its highest peak on Fridays.

The narrow road that divides the church from the mosque permits passage for only one vehicle. The number of the faithful in the worshiping places, on the contrary, far exceeds the space in the church and in the mosque. Because of this, the believers are forced to use the main roads, especially on the central days of prayers. During the Ramadan Jumaa prayers, Anwar mosque–which swells to four or five times its usual attendance—appropriates a third of Merkato as a place of prayer. The southern Cinema Ras, the western Tana Mall, (and sometimes Mierab Hotel), the northern Gojam Berenda, and the eastern American Gibi, mark the ends of the gathering. This forces the Christians and the Muslims to stand together for prayers. The Ramadan evening prayer, “Terawih”, requires a little more time than usual. The faithful park their cars around both of the places of worship. They pray beside the fences of the church, even designating the verandahs of the church buildings as temporary places of worship. I always wish to take photos of these scenes.

During the Jumaa prayers, Islamic parching (hutba) will be presented by the Imam. Sometimes it coincides with the sound of the Mass prayers from the church. The faithful will be disturbed by a mingled and distorted voice from the two loud speakers. St. Raguel’s Church has a big building on one side of the fence. The shops in the building exhibit the same confusion. The upper part of the building houses a school named after the church, while the other floors are occupied by different shops. Most of the shops are selling mobile accessories and mobile phones; the western wing of the building has shops for bags, blankets and Christian songs. The shops of the eastern wing, however, are providing Islamic articles. The building café called “Henny Penny” provides Islamic foods and beverages for the Ramadan season. This cross-shaped building, owned by the church, has shops in which Islamic clothes and other articles for sale. Abaya, Niqab, Hijab, Bourqa, (all articles of Islamic women’s clothing) as well as some mats for Muslim prayers. Some may dismiss this as mere marketing but for me it holds greater significance” Our poor life style and our culture influence our social life, and this is apparent in our religions too. My mom never missed invitations to religious feasts in the house of a Christian priest. I do not remember choosing my childhood friends based on their religion.

Some of my friends still remember the Arabic alphabets and some Qur’anic quotations they memorized in Islamic schools. In the same way, my Muslim neighbors and I have never considered the “Qes timihirtbet” (church based children’s school) to be more than a kindergarten. But this feeling seems to be absent in the new generation. Today’s Muslim friends of mine are more concerned about the issues of Iraq than their country. This might not be a mistake at all, but there seems to be some danger behind their allegiance. Most books in their homes are about “how to defeat the Zionist plot” or how other religions are working day and night to destroy Islam. The weekly newspapers also exaggerate Bin Laden’s destruction on the NATO forces.

Plenty of such literature is being sold in the road that divides the mosque and the church. The books I saw on both sides while I was writing this article are enough to validate my concern on the issue.

“The Identity of Jesus is Revealed”

“For the Loss of the Scale the Gold Has Lost: Who Oppresses Women, Christianity or Islam?”

“Jesus: is he a Prophet or a Creator”

“Who Authored the Quran?”

“Answer for Muslims: The Identity of Jesus”

It is hard not to conclude that the tension between Anwar and Raguel, is representative of the entire country. Social life is weakening; ridicule for the other side seems to be strengthening. Such tensions were showcased in the recent past. The association known as “The Military Tera Retailers Share Company” conducted a meeting in the auditorium of St. Raguel Church. Because some of the members of the association were Muslims, they attended the meeting wearing their religious capes.

The leaders of the meeting asked the Muslims to remove their capes since they were in the church compound. The Muslim members then demanded to know why they were called to the meeting if this was the case, and walked out of the meeting. Some of them even got physical. Where is the patience? Over the past two years, religious tension is growing and increasingly requiring government interference. Abay Tsehaye, the prime minister’s security affairs advisor, was busy trying to solve the general increase in religious tensions.

The followers of both religions were using their religious holidays to demonstrate how strong their influences are by amassing believers in numbers. Sometimes they speak ill of each other but in an indirect way. They print threatening messages on T-shirts and spread them to their followers. They announced that this “island has no place for other religions. Seeing all of this, I seriously fear that our relationship is on the verge of ruin. The respected history of our relationship may be only history, unless Allah and God intercede for its redemption.

China's economy

2010-08-17T06:25:00.000-07:00

CHINA has become the world's second biggest economy according to data released on Monday August 16th. Japan's economy fell behind China's at market exchange rates in the second quarter (it has been number three in PPP terms for some time). These numbers are not strictly comparable: Japan's data have been seasonally adjusted while those for China have not. Quibbles aside, Japan will surely be eclipsed soon, if it has not been already. Data compiled by Angus Maddison, an economist who died earlier this year, suggest that China and India were the biggest economies in the world for almost all of the past 2000 years. Why they fell so far behind may be more of a mystery than why they are currently flourishing.

Harvard Once Again Tops the Best Colleges Rankings

2010-08-17T06:18:00.001-07:00

This year, Harvard University regained sole possession of the top spot in U.S.News & World Report's Best Colleges 2011 rankings of national universities. Last year, Harvard and Princeton University tied for first, but Princeton fell to second in the 2011 rankings of these large, research-oriented institutions. Williams College can once again boast that it's the nation's top-ranked national liberal arts college—a category of schools that place a higher emphasis on undergraduate education—as it ranked a spot ahead of fellow Massachusetts liberal arts school Amherst College for the second consecutive year.
This marks the 27th year that U.S. News has published college rankings. Though the top-ranked schools garner much acclaim, the rankings aren't produced simply to benefit students who are considering attending institutions like Harvard and Williams. U.S. News uses its array of college data to provide insight to students of various academic and socioeconomic backgrounds. There is a list of the best schools for B students, rankings of historically black colleges and universities, as well as rankings of the most diverse national universities. And though the worst of the financial crisis seems to have passed, finding value in the increasingly expensive world of higher education is still one of the most important—if not the most important—factors in choosing a school. To meet that need, U.S. News has compiled best value lists for national universities and national liberal arts colleges, which rank schools based on the average cost of attending—after need-based grants are taken into account—relative to their academic ranking.
The National Universities and National Liberal Arts Colleges lists are just two of several sets of rankings that are a part of U.S. News's evaluation of Best Colleges. Regional colleges and universities, which tend to draw heavily from their local area, and tend to have sparse doctoral program offerings, are ranked separately. Villanova University, Rollins College, Creighton University, and Trinity University are the top-ranked Regional Universities—schools that offer degrees up to the master's level and were ranked as "Master's Universities" in the past—in the North, South, Midwest and West, respectively. The top-ranked Regional Colleges—schools that offer bachelor's degrees and were classified as "Baccalaureate Colleges" in previous rankings—are the United States Coast Guard Academy in the North, Ouachita Baptist University in the South, Taylor University in the Midwest, and the United States Air Force Academy in the West.
Though California's public educational system is plagued by financial unrest and budget cutbacks, two of the state's schools are ranked as the top public national universities. The University of California—Berkeley, which is the 22nd ranked national university, is the top-ranked public school, followed by the University of California—Los Angeles. Rounding out the top five publics: University of Virginia, University of Michigan—Ann Arbor, and the University of North Carolina—Chapel Hill.
Though schools at the top of the rankings deserve praise for their sterling academic standards, they shouldn't receive all of the credit. U.S. News asked college administrators to name schools they believe to have made sharp improvements to their academics and campus facilities. Based on the results, U.S. News ranked the top "Up and Comers" across several categories. The University of Maryland—Baltimore County was determined to be the fastest-improving national university and Hendrix College earned top billing for up-and-comers among National Liberal Arts Colleges. The best up-and-coming Regional Universities are Wagner College in the North, Elon University in the South, Butler University in the Midwest and Abilene Christian University in the West.

National Consciousness, Nation-State and the Problem of Economic Development

2010-04-13T03:42:00.000-07:00

National Consciousness, Nation-State and the Problem of Economic Development

Discussion Paper for Seminar presented to the Conference on Good Governance,

Peace, Security, Sustainable Development in Ethiopia & the Horn of Africa, from April 9-11

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Introduction

In times of a highly globalised world the essence of a Nation-State does not seem to be an issue for many developing countries. Since many developing countries, especially sub-Saharan African countries are depending on foreign aid, the question of nation-state and its relevance in maintaining social cohesion within given boundaries is not a question to be studied and discussed. It seems that many intellectuals and the political elite in many sub-Saharan African countries are not aware of the relevance of such a crucial question. The economic policies of the last six decades which many African countries had practiced and globalisation have practically eroded the issue of nation-sate from the minds of many leaders.

In this highly complicated and globalised world the issue of national identity and nation-state become more urgent than ever before. Since many African leaders including the Ethiopian government(EPRDF government) are not governing their own affairs any more, even the uneducated people ask themselves, whether they are living in a sovereign country or not. Many people in Ethiopia ask themselves what could be left for the future generation if political vandalism becomes the order of the system. Leaving aside the problem of other African countries, what is going on in Ethiopia, Eritrea and Somalia needs deep studies and scientifically validated answers if all these three nations will have in the future a functioning government, a dynamic economic system and a social order which can accommodate all groups in all these countries. Since the problem in Somalia directly and indirectly affects Ethiopia, we Ethiopians cannot ignore if things are out of control in Somalia. That does not mean that any Ethiopian government must interfere in the internal affairs of Somalia. What I want to say is the chaotic situation in any neighbouring country will have damaging effects for the stability of the entire region. As long as there is no durable peace the people of the region will be compelled to live in poverty and hunger.

The issue of terrorism and economic globalisation and now land grabbing on a higher scale are putting many countries in a defensive position. Especially the war in Somalia which is going on in the name of fighting terrorism and the displacement of innocent people, and the bleak situation in Ethiopia and Eritrea are worrying some which attract many nations to convert the region to a permanent war field. Therefore it is our task to study the causes of war, hunger and underdevelopment so that we can give proper and durable solution. Political vandalism as we see in Ethiopia and Eritrea is culturally rooted in our society, and it is the result of unsolved and accumulated problems. In societies where integrated and well functioning economic structures and a social order do not exist, such kind of situation is suitable for political vandalism. In regions or countries where political disorder is the rule of the system, where political and social consciousness is not developed, foreign forces use the weak situation of such countries and try to manipulate the leaders to be dragged into war. The result will be dislocation of innocent people and wasting of human and natural resources. In this case what is going on in Somalia and the intervention of Ethiopia in the internal affairs of Somalia and the war between Eritrea and Ethiopia destabilise all the people who are living in that region. If we closely study the situation, the war in this region is a proxy war. The people of these countries are simply the victims of their ignorant leaders, who do not understand social history, and who are not capable of creating a system where all the people could freely exercise their creative power.

In order to understand the complex situation that the region faces, we have to connect the problem of consciousness with the issue of economic development and this with the question of nation-state formation. I maintain that only social, cultural and political consciousnesses are the true foundation of genuine economic development and nation building. In the absence of national consciousness and deep understanding of historical and social processes, no country can build a viable nation-state.

The Issue of National Consciousness

Let me ask some questions. Is there anything that can happen without the involvement of the mind? Isn’t it the mind which guides and controls us to do things in a way we like and plan or is it something else? What kinds of things shape our minds to behave irrationally or rationally? How do we perceive the role of culture in shaping our minds? I think these are some of the questions which we have to pose if we want to understand the role of consciousness in our relationship to a particular nation.

In the academic circle, especially among Ethiopians there is a common belief that the absence of a democratic system is responsible for the plight of our people. Some of us may think that our leaders are by nature brutal and are not shaped by the cultural circumstances which prevail in our country. We have been accusing the Military regime to be brutal without taking into account the social and cultural context in which the military leaders are brought up. We forget that before the military leaders in Ethiopia became `socialists` they were trained by a military ideology which was produced outside the socialist block countries. The present regime of Meles Zenawi is being accused for his dictatorial, dived and rule system without trying to understand the circumstances in which Meles and his compatriots are brought up or were socialized. Such kinds of simplistic approach will not solve the problem in which our country finds itself in. We cannot get answer for such complex problems and irrational behaviour from the perspective of political science as if the issue is a pure political problem. In other words, even if we have a certain kind of `democratic rule` as we wish, the problem of underdevelopment and poverty will not easily be solved. Nor can one cope with the issue of war and hunger. If we want to get a definite answer we have to go beyond conventional politics and supposed democratic rules.

It is not without reason that since three thousand years philosophers and psychologists have tried to investigate the role of the mind in understanding the way human beings feel, think and handle. They have well understood that without taking into consideration the role of the mind and the cultural situation of a given country, one could not grasp the nature of political leaders. From pre-Socratic philosophers to Socrates and Plato, and until the 17th century, the main occupation of philosophers was to investigate the different parts of the mind. Since human beings are different from animals, because they can think rationally and are able to change their environment, some are not in a position to use this God-given mental power to pose questions and behave rationally. They will be driven by emotion and their own will and destroy their own nation. Freud teaches us that there are three parts in our minds which are responsible for our behaviour. The first one is the oldest and most primitive part of the mind. In this part human beings have all sorts of wishes and primitive thinking. This part is devoid of any rational order and is guided by simple egoistic motive. The second part is the part which shapes and characterises the personality of an individual. It can be shaped by circumstances in which certain persons are brought up and are socialized. The role of teachers and parents play crucial roles in shaping this part of the mind. Through time and any kind of positive changes this part will be more and more socialised and becomes conscious. Its thinking and handling will be controlled by the given social circumstances which are prevailing in a given country. There is a permanent struggle between the egoistic or irrational part and the socialized part. In this case the third part takes the role of mediation and tries to balance both of the parts. In other words the egoistic part will be compelled to adapt to the given situation and handles in a way what the given social circumstance expects. According to Freud, the third part is responsible for cognitive thinking of the human mind, planning and decision-making. The problem here is that in certain circumstances the appetitive part will dominate, and irrational behaviour becomes the rule of certain groups. We have seen in history that though certain rulers are brought up in civilized circumstances their thinking and handling become irrational. Hitler is a vivid example of why even education cannot change the already fixed attitude of hate and aggressiveness. Thousands of scientists, philosophers’ musicians and men of theatre blindly followed Hitler and believed in his Nazi propaganda of eliminating the Jews and other minority groups.

Human beings are like monads. They are active and perfect. They are self-contained, independent and act by themselves. They have internal power. Whereas the monads do not have windows, human beings can be influenced by external circumstance. If they are not in a position to question and analyse they will be victims of false ideology. In most cases human beings do not use their internal power to develop as an independent agent and act actively. Due to false education and ideology, the inner power that each possesses by nature will be eroded. In this case individuals will become the victim of false ideology, and their minds will be intrigued by hate and anger. They are not conscious any more of what they are doing. Even if they are educated they lack profound thinking. They will become suspicious and are not ready to accept criticism. Their minds will be closed for new ideas. Because they already have a fixed idea, they distance themselves from the masses. The lack of self-confidence makes them traitors and they are ready to sell their mother land. Such people do not understand the role of an individual in shaping its society and the relationship between an individual and the society in general. Concepts, such as society, individual freedom, genuine economic development and nation-state are not integrated in their minds. They think that a society is a loosely organised structure, in which everybody comes and does whatever he/she likes. When any country is governed by such kinds of unconscious elements, and when it has thousands of so-called educated people, the country in question cannot be an arena in which the citizens exercise their true freedom. Unfortunately, Ethiopia is governed since immemorial by such kinds of elements, and there are thousands of Ethiopians who become the victim of such kinds of manipulated education system.

Now we can come to the role of culture in shaping the human mind. It is well investigated and studied that in early childhood stage proper education has a positive impact on the thinking capacity of a child and its handling. Likewise the entire circumstance, environment, school system, the role of parents and teachers, neighbourhood and other factors have roles in shaping the mind of a growing child. The humanness of a person, his love for others and his country and his entire environment depends on the education system in which one is brought up from the beginning of childhood. Especially the love of the parents is imminent in shaping the behaviour of a given child. One cannot regain the lost opportunity once a person is matured enough. By chance or with special therapy it may be possible to positively shape the character of an individual.

To be concrete, when it comes to our country, why does Ethiopia have to experience such bloody years? Why its people have been suffering all the last four decades by those forces who are born, grown and went to school in Ethiopia? Though going to school means to get proper education in order to behave properly and humanly, why did those children become murderous? What motivates some to become agents of foreign forces which are struggling to dismantle Ethiopia? Why did they raise arms in the name of freedom though there are other means to bring smooth changes into our society? Can we blame as we usually do that a particular ideology did play a role in masterminding the so-called revolutionaries to behave irrationally? In our country and even in many earlier socialist countries communism as an ideology is being blamed for what happened in all these countries. The relative prosperity in many western capitalist countries including the United States over the last 5 decades has blinded our minds. We all have forgotten the atrocities committed by these so-called civilized countries against Africa and other Third World Countries. The First and the Second World War, though it is not a world war in the true sense of the word, had happened in the civilized Europe. It is become common to accuse a certain ideology in order to cover ones` own agenda.

Though ideology has a certain role in shaping the human mind, those persons who became acquaintance with the socialist ideology at the age of twenty or more had a different historical background which is fixed in their minds. In this case I do not blame Marxism for the political vandalism and murderous act that the student movement had inflicted and the Military government including the present have done against our beloved country. I maintain that the cultural context in which we are brought up, that is the rigid feudal attitude is responsible for our inflexible and inhuman attitude. With this the education system, with which we are brought up makes us anti-nationalistic and subversive. Regardless of what the leaders of the student movement wrote on their banners, in essence they have created a situation for anti-Ethiopian sentiments. What matters is not the intention in this case. The bloody war which was committed in the name of the revolution bothers many people. The deaths of their children and relatives have wiped all the joys form their minds and they are condemned to live in permanent sadness. On the other side all ethnic based so-called freedom fighters had one thing in their minds. If we take all the organisations which rose arms in the name of freedom their intention was and is to dismantle Ethiopia. Undoubtedly they became victims of foreign forces, and were mislead to destroy their own people. They are at the same time the victims of their unconscious act. They could not pose questions, or try to behave like normal people to check their thinking and handling. As Freud said they are driven by their irrational motives to take power and install their own dreams. All what is identified as Amhara culture is associated with Ethiopia. Ethiopia as an “Empire state” must be vanished from the map of the world. Though culture and the formation of nation-sates are like biological processes, these so-called freedom fighters could not understand why the supposed Amhara culture had its beginning in the north and could spread southwards. All nations and cultures had taken more or less the same path. When we study and understand the formation of states, we can understand the necessity of building a nation-state.

What makes our country unique is the incomplete nation-state building and the unconscious role of our rulers and the special circumstances that our country has been experiencing over the last thousand years. All these factors including the so-called modern education system are responsible for misguided thinking and handling. In this case our consciousness and our love for our country cannot be seen isolated from the entire socialization process within which we are brought up. The question arises: How can we turn these bad circumstances in which we are finding ourselves, and can behave normally and play a positive role to build a democratic and strong Ethiopia. When certain groups still believe that Ethiopia in general has been ruled over the last thousand or so years by Amharas and Tigrians, how could we convince them that this was not the case and that the situation must be studied thoroughly through a different prism. The issue of ethnic nationalism is not the problem of the masses. It is an elite problem, which cannot understand its own role, and is being languished by an inferiority complex. The Ethiopian masses in general do not have any problem in identifying themselves with their culture and country. The masses are ready to learn new things and change themselves, whereas the elites of different nationalities are not ready to do so.

The Issue of Nation-State

The concept of nation-state is a historical concept and it must be seen as a biological process. In Europe, where the nation-state formation has taken more or less a unique path it is not problematic for the people of Europe to identify themselves with their own nation. In countries like Ethiopia, where some think that the formation of the Ethiopian nation is abnormal and not a historical necessity, it is very difficult to make them understand that all countries have passed difficult roads to come to the situation that we witness today.

By historical chance, some groups or nationalities develop some kinds of division of labour. They develop a language and by that a culture. The development of a certain culture, division of labour, and written languages are sometimes accidental, because some groups may have contacts at earlier time with the outside world. These kinds of cultural developments cannot and will not remain fixed in one area. Through trade relationships and through various kinds of movements, because human beings are mobile, there come contacts with other communities. The expansion and intermingling of culture and language will become a historical necessity. Since all groups could not develop equally, because of social and cultural uniqueness of the various groups, the developed culture will be taken by other groups. In this way all cultures across the glob could develop and march towards the formation of any kind of state system. The development of state, social structure and nation-state are a historical necessity. Since human beings are condemned by nature to live within a community and are compelled to form any kind of social organization, individual self-realization can only be achieved within a given community. For various reasons, like lack of cultural and historical consciousness, the group that holds political power cannot bring the necessary development. In this case, and due to external manipulation and pressure, certain countries could not develop into an accomplished nation-state. The case of our country is a vivid example, why especially the elites of various nationalities do not feel that they are belonging to Ethiopia. They think like this because they misread history and they overstate the consciousness of the political elite that had shaped the history of Ethiopia over the last 800 years.

The Ethiopian feudal system was a unique social structure that did not allow the development of division of labour. Handicraft activities and trading were seen as activities which could only be carried out by inferior groups. The taste and the limited need of the ruling feudal elite could not pave the way for the development of various kinds of commodities. Manufacturing activities were not known. In areas where it was not possible to develop a division of labour based on manufacture activities, it was not possible to develop cities. The absence of a generalised division of labour blocked social mobility. As the people remained confined to their areas, the development of language and culture on a higher scale was practically impossible. Accordingly they could not become creative, and transform their lives. Added to these Ethiopia did not have trade and cultural relationships with the outside world. All these circumstances and the rigid nature of the political system could arrest the entire society. As a consequence poverty, hunger and mass dislocation became the stigma of the society. The ruling classes could not see beyond their own circumstances. Though there were attempts by certain rulers to modernize the system, some had resisted because they felt that their status will be diminished. The transformation and modernization of the Ethiopian society must be postponed.

One could observe that starting in the 14th century there were attempts to expand the imperial systems to various regions without modernizing the economic foundation. From the 17th century onwards the struggle became fiercer and nation-state formation became inevitable. With Atse Yohannis, Atse Tewodros and Emperor Menilik II, the crystallization of the system became clearer and Ethiopia was marching towards a kind of nation-state. Atse Tewodros and Emperor Menelik II had clearly understood that without changing the social system and without modernization it was not possible to build an imperial system. Menelik II had laid the real foundation to build Ethiopia as a nation-state. But due to various historical circumstances and because of the changing international politics, it was not possible for him to go further. There were no social forces which could develop his idea and accomplish his mission. Ethiopia did not have any middle class and intellectual force which could grasp the idea of Menelik II and put it into practice. There were no well established social structures in other areas on which one could expand the system of nation-state building. It is therefore unwise to accuse our leaders for what had happened during the middle and late middle ages. We have to understand the nature of social history through the prism of nation-state formation in Europe.

One could admit today that Emperor Haile Selassie did not understand his role as a ruler. Nor did the bureaucracy understand its role. First of all Emperor Haile Selassie had re-installed feudalism and the feudal structure after the defeat of the Italian fascism. Secondly, he let the British steal which the Italians had built over 60 years. The British imperialists had stolen all the infrastructure and industries that the Italians built within a couple of years. Because Emperor Haile Selassie was only interested in his power, he could not understand what steps he should take to build a coherent nation-state on the basis of science and technology. His alignment with America and other western powers did not help him to build a strong and developed Ethiopia. The monetisation of the economy could not pave the way for the development of capitalism. The economy becomes peripheral and subsistence in general. The social structure was contradictory and there was no social cohesion among the various groups and nationalities. There was no cultural development which makes the people creative and innovative. Such a contradictory system gave room for unconscious elements to put their evil dreams into practice. The student movement was born out of this contradictory situation not to challenge the nation-state concept but to build a modern and egalitarian Ethiopia with the help of the ideology of Marxism-Leninism. I do no want to dwell on what went wrong with the student movement. Only professional historians and critical researches could answer this part. I want to affirm that the student movement in general is not anti-Ethiopian. Its an uncritical approach to social history and misreading of the Ethiopian history and its meagre understanding of human psychology compelled it to solve the problem by means of arms. This is the greatest crime that the student movement had inflicted upon our society. The past is past. We do not have time to lament on things what happened in the past. Our historical role is to study the Ethiopian social system through a different prism and struggle for a nation-state based on science and technology. Our mission is not to be caught with revenge and accuse against each other. Our main agenda must be to struggle for a nation-state where science and technology flourish and our people live in peace and prosperity. For that we must have a clear understanding of economic mechanisms which help us to shape Ethiopia as a modern and dynamic social structure.

The Issue of Economic Development

As we misread nation-state and the necessity of nation-state we also have problems in understanding the meaning of genuine economic development. This is because we all are trained within the neo-classical paradigm which reduces everything to scarce resources and satisfaction of human needs. As far as I know nobody has tried to attach the problem of economic development with nation-state formation. If we do we completely misunderstand the meaning of economic development, and detach it from nation-state formation and building a genuine social order. In our concepts economic development becomes equivalent to market economy. Not only we Ethiopians have problems in understanding the nature of genuine economic development. The elite of many Third World countries have problems in understanding the true meaning of a genuine economic development. In the time of globalisation, the problem is multiple, economic development is seen dissociated from true human civilization. Globalization is a great challenge for many developing countries, and millions of people are thrown to slave like labour to satisfy the global capitalist system. Third World countries, especially African countries are hindered to see beyond the conventional wisdom of market economy. They are not allowed to formulate an inward looking strategy which enables them to mobilize all the available resources in order to build a coherent and a chained economic structure.

Without having a developed economic structure based on science and technology the concept of nation-state is inconceivable. The true foundation of a nation-state and a well functioning social system is to develop a science and technology based economic system. Only through science and technology could any country become dynamic and will be integrated from within. Only with a developed economic and social infrastructure any nation can be respected. The development of culture on the basis of science is only possible when there is an effort of creating a science and technology driven economic development. True individual freedom can be achieved only through science and technology. People of a given nation will get mental power when they are able to understand the meaning of science and technology. The development of well structured cities and villages is the prerequisite of an integrated home market. In short, without science and technology there is no social transformation. Those countries which still rely on the production of agricultural products and mineral resources will never see the true meaning of civilization. They will remain the victim of their own leaders and foreign forces.

Until now the struggle on a world wide scale is to get supremacy on all fields. Only few countries have taken for granted that they have a monopoly on science and technology while the rest of humanity remains as supplier of raw materials. School books are deliberately written, and teachers are masterminded to spread such kinds of propaganda. The international division of labour and trade system become the foundation of this misconceived ideology, and this becomes equal to science. Science becomes synonymous with exploitation, and enslaving the labour of Third World countries. Unfortunately we are condemned to think in this category. Those who think differently and fight for a science and technology driven economy are seen as abnormal and their approaches is taken as an unscientific. I think we have to reverse this ideology of brainwashing and must unmask the true mission of neo-liberalism. In my capacity I have tried to clarify some of the misconceived ideas in my recent article, in “The Great Confusion”. For further and elaborative clarification, the works of Professor Erik Reinhardt and Prof. Gunnar Myrdal are very interesting and should be studied.

It is important to understand the market economic philosophy of the IMF and the World Bank if we want to bring a science and technology driven social transformation in our society. Experiences in many countries have taught us that the IMF and the World Bank policies do not bring the necessary transformation what we need. The Chinese have clearly demonstrated that without the intervention of the IMF and the World Bank experts they could build a strong economy within three decades. Since the Chinese have the will to develop they could mobilise all the resources that they have at their disposal. Especially a country like Ethiopia, which becomes the victim of international finance oligarchy headed by the IMF and the World Bank, needs genuine transformation based on a holistic approach. As I have tried to analyse in my work, only a conscious economic policy based on philosophy and sociology can help Ethiopia to bring some kind of economic dynamism. With this, as Gunnar Myrdal clearly demonstrates, institutional reform is needed if we want to achieve a dynamic economic structure.

The present Ethiopian government which has sold its soul for the international financial oligarchy has thrown our country into an economic system which is mere service oriented. According to the philosophy of the regime, only trading activities and export of unprocessed agricultural products must be the basis of economic development. Ethiopia must not build a strong home market on the basis of science and technology. The economic policy of the Meles regime is a policy of quick acquisition of money. It is not based on a long term strategy to bring real development through technological development in all areas. The “strategic” part of the economy is being controlled by the ruling class, and the system hinders the development of capitalism. It seems that the government works in the service of foreign forces so that no genuine economic development takes place. Fertile land is allocated for flower plantation and crops which could serve to extract diesel. Peasants are deliberately compelled to divert their attention to crop farming and flower plantation for the world market. On the other hand the government imports dehydrated cereal products from the European community and America. Instead of building an internal market, by creating linkages in all areas the government deliberately destroys the production capacity of the society. Over the last 20 years the country has produced an omnivorous class which absorbs the wealth of the society and lavishly spends the money in bars. This unique and uncultured class becomes a kind of bridge for the infiltration of bad culture from abroad. With its arrogant behaviour and spreading of bad habit it destroys the mentality of the youth. The system becomes out of control.

More or less the situation seems like this, and the Ethiopian people are frustrated by the vulgar nature of the system. They are longing for a system which transforms their lives and make them self-reliant. It is our duty to show the road to true civilization. In this case we have to challenge the neo-liberal economic paradigm which is presented as the only panacea of solving economic and social problems. Over the last 30 years many African countries have been practicing the so-called structural adjustment program of the IMF and the World Bank. None of them could build a dynamic and free economic structure. All countries that have applied this program could not transform the lives of their people. I think this must be a lesson to us. The history of nation building proves that poverty, hunger and underdevelopment cannot be eradicated by market economic instruments, but only through conscious state economic policy. We can eradicate poverty and hunger if we accept this fact and open our mind to new ideas. The experiences of Western Europe after the Second World War, the great efforts of Japan and South Korea are good examples which help us to draw lessons. All these countries could build strong economies not by applying a pure market economic policy but through the combined activities of state intervention and private initiative.

Thank you for your understanding

Fekadu Bekele, April 9, 2010

Ethiopian Banker Leads Development Agency for Obama Administration

2010-03-16T01:11:00.002-07:00

As chief of the Millennium Challenge Corporation, Daniel Yohannes, is the highest ranking Ethiopian American in Obama's government.

An Ethiopian immigrant is making history as the highest Ethiopian-American official in the Obama administration. Daniel Yohannes was born in the Ethiopian capital. He completed his elementary school at Addis Ababa’s Nativity Boy’s School and later transferred to St. Joseph’s, a prestigious Catholic high school in Addis Ababa. “In those days people of my generation were idealistic, full of energy, with a lot of love for each other, as well as love and respect for our parents, elders, and teachers,” Yohannes says Yohannes tells about some of the successes. Ghana, he points out, is making commercial agriculture more profitable and reduce the cost of transporting food from rural areas to markets. In Lesotho, the MCC is helping the children of HIV-positive mothers live long and healthy lives by renovating health care centers and establishing clinics to distribute anti-retroviral medicines. And in Burkina Faso, 400 classrooms have been built exclusively for girls.

What the recent bilateral talks tell us about U.S.-Ethiopia relations

2009-11-09T01:49:00.001-08:00

Annette C. Sheckler 11/06/09

A great deal has been written predicting a shift in the United States’ relationship with Ethiopia under the new Obama Administration. After yesterday’s bilateral talks between Ethiopian Foreign Minister Seyoum Mesfin and Secretary of State Hilary Clinton, these dire predictions can finally be put to rest. It is clear that Ethiopia and the United States share fundamental values and interests in democratization, economic growth and development, and the security and military matters that affect not only the region but the security interests of the United States as well.
Democracy, as Americans understand it, is a core American value and most agree that democracy-building should be a core value of U.S. foreign policy. However, there is a great deal of debate today, particularly within the Democratic Party, as to, tactically, how the U.S. should pursue this foreign policy goal. While there is general agreement within the Democratic Party to repudiate the blunt force of the Bush Administration’s democracy-promotion (especially through regime-change), there are differences between those who favor a more traditional, quiet diplomacy and those who question whether American democracy can—or should—be exported abroad.
What seems clear in this debate is a recognition and acknowledgement of the context of democracy-promotion, which ideally, will shape and drive a foreign policy agenda with more substance than form. In the words of President Obama, he said that he wanted to promote democracy abroad “through a lens that is actually delivering a better life for people on the ground and less obsessed with form, more concerned with substance.”
And this is where the Ethiopian government and the Obama Administration appear to be in agreement in terms of democracy-promotion. No one can reasonably argue against the challenges of advancing democracy in a country with a legacy of bad governance, crippling poverty, a fractious political culture and hostile neighbors, just to name a few of the major challenges. All in all, Ethiopia lives in a bad neighborhood that will get worse before it gets better. In the meantime, the Government of Ethiopia is actually, quoting President Obama, “delivering a better life for people on the ground and less obsessed with form, more concerned with substance.”
What is also clear is the agreement between Ethiopia and the United States concerning “good aid” and “bad aid.” “Bad aid” perpetuates dependence, erodes institutions and can increase rent-seeking and corruption. “Good aid” is a long-term investment in breaking the cycle of dependence, building institutions and lays the groundwork for sustainable growth. Initiatives such as the U.S. Global Hunger and Food Security Initiative that address agricultural production share the core economic principles laid out in the Ethiopian Government’s Agricultural Development-Led Industrialization.
Finally, the United States and Ethiopia see what is real in the Horn of Africa as opposed to what we want it to be. Somalia is a failed state. Eritrea is a failed state. Al Shabab is a threat not only to the Horn of Africa but to the United States as well. Eritrea provides major support to al Shabab. These are facts. The close military and security cooperation between Ethiopia and the United States is crucial to Ethiopia, to the region, to the continent, to the United States and to the global community.
Does this mean that there will not be disagreements between Ethiopia and the United States? Of course not—both are sovereign states with national interests that may, at times, diverge.
The bottom line, however, is clarity about the U.S. Government’s views towards Ethiopia under the new Administration. Let us congratulate both delegations on a job well done.

33 Days to Copenhagen — Progress, Stalemate, and a Game-Changer?

2009-11-06T22:36:00.000-08:00

By Jan von der Goltz

As negotiators gather in Barcelona for a final round of preparatory talks for the Copenhagen meeting and as Germany’s “Climate Chancellor” Angela Merkel (the rare world leader with a PhD in quantum chemistry) addresses a joint session of Congress, there is no mistaking the fact that time to Copenhagen is running out fast. This blog reviews recent good news on the negotiations, acknowledges the road blocks that have rightly galvanized attention, and asks whether there is a possibility for a change in dynamics.

Progress…

Indonesia deserves praise for its bold plan to cut emissions by 26 percent below business as usual (BAU) by 2020 without international support, and by 41 percent with support. The goal is ambitious, but Indonesia’s National Action Plan is a good starting point, and a study by McKinsey has already pinpointed opportunities for reducing emissions by more than one-third below BAU.

More good news may be in the making, as India prepares to unveil “a domestic cap-and-trade programme, [where] the cap will be on energy intensity, not carbon.” Similarly, President Hu of China reaped kudos for his pledge to reduce emissions intensity by a “notable margin” by 2020. Some worry that the goal, to be specified during the bargaining process, may come to be about 20 percent intensity reduction, not quite enough to chart a path to stabilization. Yet, the International Energy Agency sees China reducing its energy emissions by 12.5 percent below BAU by 2020 with a portfolio of actions already under discussion, and the WWF’s Beijing climate chief Yang Fuqiang told a German newspaper that such actions might even imply a 17–22 percent reduction below 2005 levels. This puts China in the neighborhood of the 15–30 percent decrease necessary to avoid warming more than two degrees Celsius. China, India, and other major developing-country emitters have also made a real concession toward enhancing emissions monitoring.
The EU has at last opened the discussion on funding and proposed making €50 billion ($74 billion) per year available in public funds to developing countries by 2020, with an immediate €5¬7 billion in “fast-start” funds. While Europe was immediately chastised for failing to nail down its own contribution, it has at least begun discussing allocation formulas that would have it contribute about half of the total sum.

Finally, in the United States, the joint initiative of Senators Graham (R-SC) and Kerry (D-MA) appears to promise progress on climate legislation. The Obama administration has also made some headway, arguing that weak action would hamstring the country in the race for leadership on clean technology.

… and stalemate

At the same time, agreement remains elusive on the core questions of burden sharing: funding and the allocation of emission cuts.

The United States’ refrain remains that there can be no agreement without commitments by major developing-country emitters, and that it can only join a ‘bottom-up’ scheme in which all countries specify domestic initiatives without generating international treaty obligations.

U.S. insistence on (and EU support for) this approach has profoundly dismayed developing countries. At the same time, the United States urges understanding for the obstacles its own legislation faces in Congress, especially given the current preoccupation with health-care legislation.

But international sympathy has been limited. Observers have been quick to point out, for instance, that Senators Baucus’ (D-MT) concern that “[his home state Montana] cannot afford the unmitigated effects of [the Kerry-Boxer] climate change legislation” sits awkwardly with the Environmental Protection Agency’s estimate that the bill would cost U.S. households all of $100 per year. And besides, competing priorities of great human importance are seen to be the rule, not the exception.

Many, however, agree that the world would stand little to gain if the Obama administration were to ignore Congress’s misgivings. As India’s Environment Minister Jairam Ramesh has pointed out,

“The US is making small steps [on climate change]. Remember, without the US there will be no international agreement. So there is no point in hectoring or beating up on them like the Europeans seem to be doing.”

Yet, with action in Congress before Copenhagen unlikely, and developing countries yet unwilling to agree to the bottom-up approach, all but every global leader has been busy lowering expectations for Copenhagen. The emerging consensus was articulated by Ramesh, who called on his colleagues to “clinch those elements of the deal that we can clinch. … Then we can come back to Copenhagen in the summer of 2010 to clinch the larger agreement.”

Is there scope for a game-changer?

The prize question of the negotiations has long been whether the Obama administration has an ace up its sleeve and can put something new on the negotiating table. Yet, the administration seems to have determined that it must go with whatever Congress legislates and that it must clinch an agreement that does not require a (67-vote) treaty majority in Congress. Beyond this, it tries to leverage its limited flexibility—chiefly in technology cooperation—through bilateral negotiations.

Meanwhile, the EU and Japan have already staked out progressive positions and have little more leverage (short of imposing trade sanctions, as France and Germany have threatened). This really leaves only one potential game-changer, a yet bolder commitment from China or India.

In this respect, the most intriguing recent development was the debate in India following the leak of a memo from Environment Minister Ramesh to the Prime Minister. Ramesh suggested that India adjust its tough negotiating stance in its own national interest. He proposed that India ease off its opposition to the bottom-up framework (while retaining differences in the type of action different countries take), propose its own actions without guarantee of funding from developed countries, and permit external verification. This, he argued, would both help limit climate impacts on India’s vulnerable economy and enhance India’s international reputation (India has been increasingly portrayed as a less helpful player than China, despite its much lower emissions).

The proposal was met with acerbic commentary from parts of the Indian media and commentators like the Centre for Science and Environment’s Sunita Narain With little backup from his own party, Ramesh was attacked from the left and the right, with the Hindu nationalist BJP’s general secretary calling the proposal “[the governing coalition’s] Diwali gift to the United States and other developed countries at the cost of India’s poor.”

The future of India’s stance is unclear. Both Ramesh and the Prime Minister have since re-stated India’s original position. Yet, Singh also has taken steps to build domestic consensus on moving to a revised stance.

A bold move of the type advocated by Ramesh remains the most obvious contingency that could change the negotiating dynamics. Some suggest that such decisive action would come in exchange for influence in the IFIs or the Security Council. Whether there is such an explicit quid pro quo or not, what seems clear is that some developing countries are weighing the possibility of doing more on climate than they are ethically obliged to do. There are real costs to such a stance, and it is for developing countries alone to decide whether it is worth considering. Yet, the moment clearly holds a rare opportunity for conspicuous leadership of the kind that re-makes international systems.

Bravo AEUP, CUD, EDP and EPRDF for a Historic Leap into a well-ordered Democratic Society

2009-10-31T07:46:00.000-07:00

Adal Isaw

adalisaw@yahoo.com

October 30, 2009

Although the many questions that pertain to a democratic life may be universal, some leaders and thinkers have explored the same questions in a unique, powerful and timely fashion. Such leaders and thinkers have served as benchmarks—for those of us who’re faced with similar inquiries to the same set of the many questions that a democratic life poses. The questions faced by the leaders of AEUP, CUD, EDP and EPRDF might have not been uniquely attributed to them, but their recent civil engagement for a needed political action to produce a lifesaving national document is unique, powerful and timely.

These Ethiopian leaders have explored and produced a desperately needed national document, at a time when Ethiopia is at a crossroad bombarded by many years of abject poverty and detractors that work overtime to cease its existence. Ethiopia has won and those with other plans in their political playbook are served with another tacitly conveyed binding national document; the time for actions and reactions prone to violent and backward public discourse is over. It should further be noted, by producing a document for the peaceful democratization of Ethiopia, these leaders of AEUP, CUD, EDP and EPRDF have become the needed benchmarks for all future pallbearer young generation of Ethiopians.

It’s now incumbent up on us Ethiopians, to contrast and compare the fruitful and exemplary political engagement of AEUP, CUD, EDP and EPRDF with those for whom the historic national document is waiting to be signed on time—before the 2010 Ethiopian Parliamentary Election. More than anything else, it’s now the responsibility of peace and democracy loving Ethiopian Diaspora— to come to terms and see this national document for what it is. It should not expect for gimmicks to bubble or for a theory of conspiracy to flourish; period.

The arduous collective work to propagate for the peaceful democratization of our beloved country has begun. And it is up to the Ethiopian Diaspora—to either make it its duty to propagate the peaceful democratization of Ethiopia or, to go on tangent and openly stay hostile to a lifesaving national document that no civil and democratic nation and institution will say no to. Ethiopia has won big; because, the mere intent in this binding document disarms the few hostile voices of democracy and democratization in Ethiopia—without a single shot to the air.

These Ethiopian leaders have disarmed the naysayers with plain and simple words of democracy and peace, thereby lowering the threat level that might have existed otherwise endangering the livelihood of Ethiopia and Ethiopians. Thus, the binding national agreement in and itself has become a historic leap of political action—to civilly pave the boulevard to reasoned political dialogue which is essential to well-ordered society.

The political cooperation between these disparate Ethiopian political parties should continue and continue for one very simple reason; the work they can do together to better Ethiopia and Ethiopians is infinitely greater than the interest they garner by paying homage to their political and ideological convictions. It is the interest of Ethiopia that brought these otherwise disparate political parties to work together in the first place, and, this same interest should make them come together time again, whenever our country is faced with problems that need a united Ethiopian effort to answer.

You see; unlike physical science problems which, when answered are answered once and for all, political problems of the kind we have in our beloved country, manifest a unique open-ended quality. Each “answer” to a given political problem entails a new set of problems, and as a result, the duty of creating a decent and humane political order is never done with. With this in mind, this type of exemplary political work should continue to enable Ethiopia tackle the bigger and harsher impending and imminent problems with a united fist.

The unison shown by these Ethiopian leaders of different parties to sign the binding code of conduct has propelled Ethiopia one less a threat away to democratization. But more than anything, while it has given Ethiopians the needed sigh of relief from fear of the unknown, it has unambiguously broken the remaining political backbone of the violent prone self-exiled-opposition into unsalvageable pieces. Those who were eager to see nothing but disorder and blood have been served a notice that no matter how contentious their political thoughts are, nothing will deter AEUP, CUD, EDP and EPRDF from working together to democratize Ethiopia peacefully.

Ethiopia’s endurance is paying!!!

Bravo AEUP, CUD, EDP and EPRDF

On the Upcoming National Elections [2010] and Beyond:

2009-10-31T07:17:00.000-07:00

By Tesfaye Habisso

“ The key element in the exercise of democracy is

the holding of free and fair elections at regular

intervals enabling the people’s will to be expressed.”

[Universal Declaration on Democracy, IPU Members

in 1997]

Ethiopia’s brief experiment in democracy and its attempt at installing good/ democratic governance in a multiethnic, multicultural and multilingual society of ours since the last 18 years or so, I am afraid, has not yet been as successful when compared to its noteworthy achievements in the areas of transport infrastructure development, economic growth (GDP), and the provision of social services (condos for the urban poor; potable water, health clinics, schools, roads, etc for the rural peasants). Based on vast available literature on the subject of democracy, one can discover that the domination of the political system by one party [EPRDF since 1991], the multiethnic, multicultural and multi-religious makeup of the society, the prevalence of an ethnically dominated party system, abject poverty, and the difficulty of adopting democratic values, rules and procedures as well as a culture of tolerance among political elites that have inherited a legacy of political power changing hands through the barrel of the gun and not via peaceful, competitive and free, fair and credible elections, etc. are some of the major factors that can be mentioned as major impediments to our democratisation efforts and struggles yesterday, today and in the years to come. Owing to these factors, the pace and progress of the democratisation process and the successful transition to and consolidation of democracy in our country has so far been full of fits and starts, the periodic elections often marred by violence and public disorder resulting in accusations and counter accusations of vote rigging and fraud by the losers in the periodic elections, often targeting the ruling party and government. Thus, the procedural quality of electoral democracy surrounding the conduct of regular free, fair and credible elections, the respect for political rights, such as the right to vote, to form political parties and to compete in elections, the respect for civil liberties, such as the freedom of expression and association, and the extent to which the government is accountable, responsive, transparent and respectful of the rule of law still leaves a lot to be desired.

Many scholars forcefully argue that the ongoing democratisation process cannot succeed and a democratic political system cannot become consolidated unless the principal political elites in the society agree upon the rules of the game of that system and are willing to abide by those rules. The basic rules of a democratic system are to allow for full and unhindered contestation and participation. Elite support for democracy is often the product of agreements between all or some key political parties and leaders. A comprehensive elite settlement takes place if all the paramount political groups in the society participate in the agreement. A comprehensive settlement will most likely provide for full political contestation since the principal political groups will be able to contest power in the resultant political regime. Such elite agreements have two important consequences: they create patterns of open but peaceful competition among all major elite factions and they transform unstable political regimes into stable regimes, in which forcible power seizing no longer occur and are not widely expected. In essence, an elite settlement transforms disunified elites into “consensually unified elites”. Consensually unified elites “operate stable, politically representative regimes,” where “government positions pass peacefully among different persons and factions”, usually through “periodic, competitive, and binding elections”.[Burton and Higley, “Elite Settlements”, American Sociological Review 52, June 1987, p. 297]. A regime transition that results in a long lasting democracy is likely to be the product of an elite settlement, while a regime transition that leads to a failed democracy is likely to be devoid of a settlement.

Be this as it may, the process of becoming a democracy is most often fraught with more problems and challenges than is usually acknowledged. According to Donald L. Horowitz, “…democracy is exceptional in severely divided societies, and the claim has repeatedly been advanced that democracy cannot survive in the face of serious ethnic divisions. At least since John Stuart Mill pronounced in Representative Government that democracy is “next to impossible in a country made up of different nationalities”, a respectable body of opinion has subscribed to such views.” [Donald L. Horowitz, Ethnic Groups in Conflict, University of California Press, 1985, p. 681]. In a similar vein, Francis Fukuyama, in his book, “The End of History and the Last Man” states: “…democracy is not likely to emerge in a country where the nationalism or ethnicity of its constituent groups is so highly developed that they do not share a sense of nation or accept one another’s rights. A strong sense of national unity is therefore necessary prior to the emergence of stable democracy, just as it preceded the emergence of democracy in countries such as Britain, the United States, France, Italy and Germany. The absence of such a sense of unity in the Soviet Union was one of the reasons why stable democracy could not emerge prior to that country’s break-up into smaller national units.” [Ibid, The Free Press, New York, 1992, p. 216] Political experience has unambiguously shown that in poor multiethnic or plural/heterogeneous societies, for instance, transitions to democracy have proved to be mostly rocky and violent, and this often gives rise to warlike nationalism and violent ethnic conflicts. In such societies a peaceful transition to democracy is exceptional, and the certainty that democracy will prevail is in question. Democratic movement in the first place was born out of a unique set of conditions prevalent in the Western world. Some of the ingredients necessary for the evolutionary birth of a democratic order are believed to be: (1) industrialization; (2) rise in literacy levels; (3) abundance of resources; (4) isolation from negative outside influences and (5) political theoreticians whose vision spans the past, present and future and who have a grasp of the physical disciplines required in that particular age [http://www.hujra.com/democracy_not_work.hym]

For many scholars, democracy is a delicate flower that requires a host of social and institutional prerequisites. One scholar suggests that democracy requires a populace endowed with nine psychological traits, among which are tolerance, realism, flexibility, and objectivity, and further, that the country must have economic well-being, economic equality and an educated citizenry [Carl Cohen, Democracy, Athens: University of Georgia Press, 1971]. Another political scientist names seven conditions necessary for democracy, including a “strong concern for the mass of people” and “high social mobility” [Alfred De Grazia, The Elements of Political Science, New York: Alfred Knopf, 1952, pp. 546-547]. Robert Dahl describes three essential conditions for a multiparty democracy to function; these are: (1) extensive competition by contestants including individuals, groups or parties for government; (2) political participation that provides the choice for the electorate to select candidates in free and fair elections; and (3) civil and political liberties that enable citizens to express themselves without fear of punishment [Robert Dahl, Democracy and Its Critics, New Haven: Yale University Press, 1989, p. 221]. In his evaluation of the “third wave of democratisation” of the seventies and eighties, the American political scientist Samuel P. Huntington concludes that states become particularly susceptible to democratisation when they have reached a certain minimal level of social and economic development [Samuel P. Huntington, The Third Wave: Democratization in the Late Twentieth Century, Norman, 1991, p. 59ff].

Most often democracy has come to be equated with mere superficial and easily recognizable mechanical processes, the most recognized of which being regular elections. Elections are indeed a necessary but by no means a sufficient condition for the completion of a democratic transition. The mere casting of a vote does not make a democracy even when the elections are indeed free and fair [Silindiwe Sibanda, Poverty and Democratic Participation: A Pyramidal Construct of Democratic Needs, The Center for Advanced Studies of African Society, Cape Town, South Africa: http://www.dpmf.org/poverty-silindiwe.html]. It is believed that a country has completed the transition to democracy when “the government resulting from election…has the de jure as well as the de facto power to determine policy in many significant areas.” [Linz and Stepan, “Toward Consolidated Democracies”, pp. 14-33]. Whatever the case, a democratic transition is a long and difficult process that may take many decades to complete. Even if the country has transitioned to a democratic political system, the journey towards stable democracy is not secure and completed.

Then, at what moment does a successfully democratising state become a mature democracy? When can its democracy be termed consolidated? Some scholars use the “two turnover rule” to define “democratic consolidation”, that is a democracy is considered consolidated when power has changed hands twice as a result of free and fair elections. Others say that democracy is considered consolidated when it is “the only game in town”, that is when no significant political party or group seeks to come to power by means other than winning a free and fair election. Others measure the degree to which the country has achieved the institutional and legal characteristics of a mature democracy, using indicators such as competitive politics, regular elections, broad participation, constraints on arbitrary use of executive power, free speech, and respect for civil liberties, including minority rights. Once a country has completed a democratic transition, it is left for that democracy to be consolidated, a necessary condition for a lasting democratic regime.

According to Linz and Stepan, a “consolidated” democracy is a “political regime in which democracy as a complex system of institutions, rules, and patterned incentives and disincentives has become, in a phrase, the only game in town.” Haggard and Kaufman state, “a democratic consolidation is a process through which acceptance of a given set of constitutional rules becomes less directly contingent on immediate rewards and sanctions and increasingly widespread and routinized. Consolidation is essentially a more important process than transition. A government may be able to transition to democracy, but if it does not consolidate said democracy, it may relapse into authoritarianism or other non-democratic forms of government. Additional factors must be in place if a democracy is to be considered “consolidated”. First, the conditions must exist for the development of a free and lively civil society. Second, there must be a relatively autonomous political society. Third, throughout the territory of the state all major political actors, especially the government and the state apparatus, must be effectively subjected to a rule of law that protects individual freedoms and associational life. Fourth, there must be a state bureaucracy that is usable by the new democratic government. Fifth, there must be an institutionalised economic society [Haggard and Kaufman, The Political Economy of Democratic Transitions, Princeton, NJ: Princeton University Press, 1995, p. 15].

Today, as we talk of the upcoming fourth national elections in 2010, I think the aforementioned challenges should be taken into account when re-examining and re-assessing our heretofore efforts to realize a functioning and stable democracy in Ethiopia. Furthermore, a few salient points regarding democratic elections must be raised and discussed/debated now in order to avoid the re-occurrence of some of the ugly and dreadful features that we witnessed in the electioneering exercise during the past decade or so in our newly democratising country, more so in the aftermath of the 2005 national elections. In our case, we can boldly assert that we have not yet moved far enough from the politics of confrontation, acrimony and hostility that has bedevilled the national political arena for a long time, reminiscent of the politics of the Ethiopian students movements of the 1960s and 1970s. It is believed that Ethiopia could build upon its manifest potential and significantly transform its democratisation and developmental prospects if its principal political parties were to pursue a more constructive and responsible approach to politics. The prevailing political stalemate, it can be argued, does not derive from any fundamental divergence amongst the major political parties but remains associated with the increasingly confrontational style and language of their politics. The prevailing political divisions, often of an incendiary nature, have their roots in the country’s troubled political history and the heterogeneous nature of the nation’s ethnic makeup (comprised of over 83 ethnic groups, “nations, nationalities and peoples” as the FDRE Constitution defines them). The divisive potential of such differences should not be underestimated but they do not impinge upon the contemporary debates on development strategy, democracy and improved/democratic governance.

Therefore, the urgent task for the incumbent government and party is to create conducive conditions to promote mutual trust and confidence between political groups and organizations which are committed to peace and democracy, and interested to be parties to the political process. This can be done when political freedoms are not proscribed, political space open and conducive for all political parties, and when all of us show in words as well as in deeds that we are committed to respect the verdict of the people and that we are not in any way entitled to impose our will by force or pressure on the people. Belief in and commitment to the principle that the people are the ultimate arbiters of policy matters is fundamental in building trust and confidence. Where all political groups and organizations accept to be bound by the results of the ballet box, it is only natural to recognize their rights to articulate and propagate their programmes their own way, and thus the need for sufficiently permissive political space for all contestants of political office. And where this right is fully recognized and respected, there is no legal or material/moral justification for any group to resort to armed conflict or any confrontation.

Over the last decade or so, it cannot be denied that opposition political parties have not been given free reign to organize and operate, except perhaps during the 2005 national and regional elections campaign period only. Instead, these parties were confined to their headquarters, invariably located in Addis Ababa. This non-conducive political environment has to give way to an open, transparent and conducive political situation where political space can provide freedom to all opposition parties to organize and operate freely without infringing the freedom of others in the political arena. After all, politics, the activity of resolving a delimited set of matters that are public and common, takes place not in the imagination, nor merely in human minds, nor in any random place, but in spaces duly constituted for such as activity. Because its concerns are by definition public and common, its activity must take place in a public common place, and all opposition politicians committed to peaceful and constitutional competition must be provided this public space without any constraints.

Yes, democracy has its own rules. It can survive and flourish in our country only when all of us commit ourselves to play by the rules of the game: contestation and participation. It so happens that those who play by the rules of the game are those who not only understand its true meaning and substance but are also confident of themselves and their political objectives, and the political goal which gives one confidence is that which addresses itself to the true needs of the peoples of Ethiopia for democracy, peace and prosperity. After all, elections are peaceful competitions to serve the people and be ready to shoulder the immense challenges of extricating our peoples from the quagmire of abject poverty and under-development, helplessness and hopelessness, and surely not a struggle for self-enrichment and other selfish ends.

Yes, the 2010 national and regional legislative elections are fast approaching and the election season will soon overwhelm us. If we are not careful, soon legions of eager politicians representing different political parties, independent office seekers and their acolytes will be scurrying here and there engaging in all manners of conduct and for some of them, all manners of misconduct, in their energetic pursuit of office. People will soon be claiming that their opponent, whom heretofore we all thought was a relatively honourable person, now sits at the left hand of the Devil. But the real issue is, for what purpose is the party candidate running or being fielded and the independent candidate taking part in the election drama? Being in politics for the sake of politics is pitiably selfish. One should only engage in politics if she/he believes that she/he has the necessary education and capability and seeks to move to a more elevated and productive plane—that of democratic governance. And democratic governance implies dedicated, efficient and quality public service free from corruption and discrimination. A politician who is not capable of good/democratic governance is like getting into a new car that has no engine. While it looks good, it gets you nowhere. Thus, we should ask all potential politicians—party candidates as well as independent office seekers--, “Are you a politician because you have something to contribute or are you involved because you are looking for a secure employment or for something to take away for your own selfish ends and interests? Are you there because you like the sound of the title “Honourable MP” and because the sound of sirens has become an intoxicant to your ears? Or are you seeking office so that you can help our elderly folks get the necessary old-age care, help the adults and the youth find work to feed their families their daily bread and because you feel unequalled exhilaration when you see healthy, well fed children smile as they walk, books in hand, on their way to school?” Now that the election season is soon to overwhelm us, we all have a choice to make. Will our politics be small and selfish or will it be visionary, and will it be beneficial to those whom we purport to serve?

These are some of the vexing questions before us all, political parties and independent candidates. These questions are freighted with great importance. Thus, may we answer them with all the wisdom we can summon? Because Ethiopia is a recently minted democracy, our responsibility to hold fair, free and credible elections acceptable to all contestants in the nation’s political arena peacefully and bring good, democratic governance to our people is indeed acute. We may not face any greater collective responsibility for the remainder of our lives. In an older, well-established democracy, the relevant institutions and political culture have had time to root themselves in the social fabric of these societies. In such a situation, where the people err by electing bad leadership, the nation or community can endure because democracy has become a way of life. The dividends that have previously bestowed have built a reservoir of goodwill to see the people and this noble concept through the lean years.

When a democracy is young, as in our country, however substandard, flawed elections or a period of poor governance can give a mortal blow and wreak havoc to the democratic experiment. The ugly aftermath of the May 2005 national and regional parliamentary elections is a glaring example in this regard. The process of democratisation is not much different than the growth of a human being. Hardship an adult can endure may be fatal to an infant. We, as leaders of our State and communities, are the appointed guardians of a precious infant, Ethiopia’s democracy. Like any decent parent, we must place the survival and well being of that child above our own narrow interests. No decent parent feeds himself/herself until he/she can eat no more but let his/her child starve.

We as elected officials, we as government officials, we as community leaders and stalwarts, are among Ethiopian democracy’s founding fathers and mothers. Let us be as good parents to democracy as to the children of our own flesh, fibre and blood. Let us not let democracy be orphaned. When democracy is new, that is precisely when it must prove itself to the people, to the poor masses. If it does not produce noticeable fruits in the form of bread and butter—basic necessities of life such as shelter, clothing, food, healthcare, education, etc.-- and a modicum of safety, security, employment and freedom, the population, because it does not have a deep grounding in this form of government, may well decide the tree is barren and turn to something else that appears to have a more immediate yield. Cynicism, demagoguery, mistrust and selfishness creep in where faith and hope should reside. In such an atmosphere, democracy may be in jeopardy.

Here I will say something that at first seems to contradict what I have said before and that is, Ethiopia’s history indicates that it can survive for some time without democracy. In fact, democracy is the sole guarantee for Ethiopia to survive as one nation of many nations—a multi-nation federal state. However, history—and the large gulf that separates Ethiopia’s reality from its potential—is conclusive proof that a country cannot flourish in the long term without embracing political democracy and the economic empowerment of the individual and the group/community that democracy implies. This thing called democracy is a complex, and at times, an ungainly animal. From afar, it looks like an inefficient form of governance; but up close, it is the most practical one.

Under a dictatorship, it is easier to render and implement decisions. One person—a dictator/ leader—and his cabal say yes or no, do or don’t. Matters are settled by a decree with lightning speed. Arbitrariness is the backbone of such an arrangement. No need to engage a legislature or the populace at large or worry about the courts and the legality of what is proposed. The minute a despot speaks, the matter is over. The grave danger of this type of governance/government is that, over time, it leads to total oppression, widespread malfeasance and worst of all, the misdirection of our country’s future. Above all, a developmental state such as ours, or any other state for that matter, cannot function without an efficient, effective and ethical bureaucracy; it cannot deliver the necessary goods and services to the general public in time. With government of such a capricious and closed nature, you reap that which you sow.

On the other hand, constitutional democracy and its associated checks and balances are the best form of government because they recognize the flaws in the human character. If we were all saints, government would be unnecessary, as social theorists contend. No, democracy does not work because we are angels and saints. It is necessary because it is the form of government that best restrains the demon in us all. That demon goes by many names—ambition, greed, self-interest, patronage, cronyism, ethnocentrism, corruption, are just a few names.

Just having the democratic forms and institutions are inadequate in themselves. The people with whom these institutions are entrusted must contain the values of democracy in their hearts and minds. A constitution is but a piece of paper and a piece of paper, no matter how special the words inscribed therein, is easily shred. The real constitution that begets good, democratic governance is not found in the piece of paper, it is found in the spirit and thoughts and philosophy that gave rise to what was written. What I am saying is that, for the constitution to be real and genuine it must be written in your mind, your heart, and your behaviour.

Moreover, seeking the welfare of the masses must be the primary step, the motivating force to any meaningful structure or conduct of government. For good/democratic governance and democracy to take hold, the answers to two questions, “Why do you run for office” and “Why will the people elect you” must be the same. Dissatisfaction and trouble reign wherever and whenever the answers are different. If you run for office because you wanted to enrich yourself but the people elected you because they thought you would bring them better social services, surely, some sections of the population/community will be disappointed. Something has to yield in this situation because you cannot serve two masters—you must either serve them or yourself. Either you will have to change your ways or they will have to accept your self-aggrandizement but both cannot get what they want. Where there is such a fundamental discord between the elected official(s) and the electorate, contention will be your pardon. Conversely, where there is general harmony of interests, you have established the essential foundation for good governance.

You as political leaders of the State can and must be the primary example of good governance to the people. The people may not always be in contact with national officials, but, if you do your work properly, you must be in close contact with your community. By doing your jobs, you not only become the best exemplar of grassroots democracy you become democracy’s protector.

In order to serve this vital function, you must have a vision for your State, your Zone, your Woreda, your village community. If you do not have a vision or a capability as well as sufficient time and energy and vigour for improving or serving your community, you should seriously think about pursuing another vocation. This one may not be for you. Of course, state and local government cannot do everything but you must work with and for the people to bring them the vital services within your mandate to deliver. What the people need from you is not shrouded in mystery. It is easy to discern their needs and concerns provided you care enough about those who elected you. They are looking for improvement in health care for their families, education for their children, better infrastructure, economic growth and employment; safety and security. They want to enjoy their hard-won constitutional rights, freedoms and liberties.

As I said before, you cannot do all of these yourself. But you do have some funds and manpower to address some of their concerns. To the extent you control assets, set your budgets to meet the social service priorities of your community. Move around your State, your Community; take time to express your vision for improving it to your people; let them express their ideas and concerns to you. Listen to their cries, discern their concerns and needs. Some of their ideas will be good, don’t tarry in accepting these ideas. Embrace their good ideas to refine and improve your thinking and your programmes. Accepting someone else’s ideas is not weakness. It is wisdom. If you do follow this tack, your supporters will continue to give you support. Those who once opposed you, will begin to think better about you. Those who hated you, will begin to respect you. Just by listening with an open ear and honest heart, you have taken an important step toward good governance that uplifts the spirit and well-being of the entire community.

In this regard, remember not to shun or harass and persecute your political opposition. Do not mistake electoral politics for military warfare. These people are your fellow nationals and your political opposition not your mortal enemies. Only one person can win an election. But if the election is done fairly and credibly, we all stand to gain something from it. However, if we turn elections into a form of warfare, there is no true winner or loser. We all suffer in the end. Even the so-called winner loses. Given the sharpness of the electoral warfare, even the winner cannot quickly divorce himself from the combative spirit that governed during elections. Once a person gains power by any means, he becomes convinced that his opponent will try to steal that power by any means. This type of victory is no victory at all. This type of psychology is not conducive to good governance and the progress of democracy. In such a situation, a person sleeps with one eye open and one foot on the floor. No matter how high or soft the bed, no one can find comfort in such an arrangement. Thus, it is better to make peace after the elections and the best way to obtain post-election peace is never to engage in pre-election warfare. Better a person erect and live in a modest house in peace than build a large mansion only to destroy half of it.

Remember that your political opponents are human beings with brains and reason. They cannot be wrong on all issues all the time no more than you can be right all the time. Your opponents are entitled to respect and dignity. Listen to them, give them adequate political and economic space as well as proper support, financial and other. Do not starve or humiliate them. Always remember you are not perfect. Even the good decisions you make are not perfect and have their flaws. Often the solutions of today’s problems are the parents of tomorrow’s challenges. No one has a monopoly on truth and knowledge. Accept in good faith the constructive criticism of your political opponents.

The concept of loyal or legal opposition is central to any functioning democracy. It means that all sides in a political debate, however deep their differences, share the fundamental democratic values of freedom of speech and faith, and equal protection under the law. It means, in essence, that all parties in a democracy should be equally committed to the basic values, rules, and procedures of democracy. Parties that lose elections step into the role of opposition—confident that the political system will continue to protect their rights to organize and speak out. In time, their party will have a chance to campaign again for its ideas and programmes, and the votes of the people. Political competitors do not necessarily have to like each other, but they must tolerate each other’s legitimacy. The right of the minority (opposition) does not depend on the goodwill of the majority (ruling party). The losers in an election must not be, or feel, threatened. On the contrary, they must feel comfortable to continue participating in public life.

Finally, the holding of free, fair and credible elections rests on the shoulders of the National Electoral Board or Commission of Ethiopia. Although the support and cooperation of the whole people and government as well as all political parties and the latter’s supporters in the nation’s political arena are required, the responsibility of the Electoral Commission for conducting a peaceful, free and fair election should be duly emphasized. In many newly democratising countries, most complaints that arise during post-elections are attributed to shoddy elections conducted by partisan, ineffective, unprofessional and unscrupulous election officials or commissioners of questionable integrity and their support staff from the top to bottom following their superiors' instructions, often resulting in unnecessary violence and bloodshed. Many election observers and monitors forcefully contend that 50% or more of such election-related bickering, showdowns and other related problems can/will be satisfactorily resolved if the National Election Board or Commission is governed by unquestionable professional ethics, independence, impartiality and the highest code of conduct in its responsibility of effectively and efficiently managing and conducting free, fair and credible elections acceptable to the electorate and all competing parties participating in the periodic elections, and in the security forces (army, police, militia, etc.) remaining aloof and non-partisan. Even mere perceptions that the Board or Commission is not highly independent, professional/ capable or impartial enough to conduct free, fair and credible elections in the country or that the security forces are interfering in favour of the ruling party would send shockwaves across the political marketplace, forcing the competitors in the political arena especially the losers in the elections to challenge or question the credibility of every election results and judge them as unacceptable and to resort to all sorts of violent methods to reverse or change the outcome, besides launching endless accusations and smear campaigns to tarnish the democratic election. Such undesirable outcomes must be avoided as far as possible by rectifying or doing away with all possible weaknesses, shortcomings and deficiencies, real or imagined, that surround the functioning of National Election Board and the security forces of the country before the campaign period begins and crafting comprehensive settlements between all or the principal political elites in the nation’s political marketplace regarding the rules of the game that will be meticulously observed and respected by all parties during voters’ registration and the campaign period as well as before and after the polling day, from voting to observation to vote counting and declaring the election results, etc. As the saying goes, “A stitch in time saves nine.” Last but not least, let us all protagonists and their supporters in the power competition insure that our campaigns will be absolutely peaceful and that no single Ethiopian injures his body or loses his/her life in the upcoming national elections whatever the cause or the outcome. This must be our solemn oath to our people who have suffered so much senseless death and destruction in the recent past in the name of democratic and peaceful elections in their modest attempt to elect their political leaders who are supposed to bring them peace, security, service delivery and prosperity and surely not death and destruction. How long do we seek to make our poor citizens sacrificial lambs for our selfish ends? This brutality must end once and for all. As signatory of numerous international, continental and regional declarations and charters on democracy, human rights and democratic elections, let us rise as a nation to meet or fulfil the expectations of the international community, the African Union and above all our peoples by making the 2010 national elections free, fair and credible, and move beyond that objective to build genuine democracy and good governance in Ethiopia. Now that we, opposition parties and the ruling party, have agreed upon and signed a lasting code of conduct for the upcoming elections and those beyond, let us all endeavour to diligently and meticulously translate this historical document to practice and make all Ethiopians happy and contented of the outcome, now and in the future. For God and our country! Amen.

EDITORIAL ON CLIMATE CHANGE AND THE 22 SEPTEMBER SUMMIT

2009-10-31T06:25:00.000-07:00

By BAN Ki-Moon

885 words

Two weeks ago, I visited the Arctic. I saw the remains of a glacier that just a few years ago was a majestic mass of ice. It had collapsed. Not slowly melted -- collapsed. I travelled nine hours by ship from the world’s northernmost settlement to reach the Polar ice rim. In just a few years, the same ship may be able to sail unimpeded all the way to the North Pole. The Arctic could be virtually ice-free by 2030.

Scientists told me their sobering findings. The Arctic is our canary in the coal mine for climate impacts that will affect us all. I was alarmed by the rapid pace of change there. Worse still, changes in the Arctic are now accelerating global warming. Thawing permafrost is releasing methane, a greenhouse gas 20 times more powerful than carbon dioxide. Melting ice in Greenland threatens to raise sea levels.
Meanwhile, global greenhouse gas emissions continue to rise.
I am therefore all the more convinced we must act -- now.

To that end, on September 22 I convened a special summit on climate change at the United Nations for some 100 world leaders -- history’s largest-ever such gathering of Heads of State and Government. Their collective challenge: transforming the climate crisis into an opportunity for safer, cleaner, sustainable green growth for all.

The key is Copenhagen, where governments will gather to negotiate a new global climate agreement in December. I will have a simple message to convey to leaders: The world needs you to actively push for a fair, effective and ambitious deal in Copenhagen. Fail to act, and we will count the cost for generations to come.

Climate change is the pre-eminent geopolitical issue of our time. It rewrites the global equation for development, peace and prosperity. It threatens markets, economies and development gains. It can deplete food and water supplies, provoke conflict and migration, destabilize fragile societies and even topple governments.

Hyperbole? Not according to the world’s best scientists. The Intergovernmental Panel on Climate Change says global greenhouse gas emissions need to peak within ten years if we are to avoid unleashing powerful, natural forces that are now slipping out of our control.
Ten years is within the political lifetime of many attending the summit. The climate crisis is occurring on their watch.

There is an alternative: sustainable growth based on green technologies and policies that favour low emissions over current carbon-intensive models. Many national stimulus packages devised in the wake of the global economic downturn feature a strong green component that creates jobs and positions countries to excel in the clean energy economy of the 21st century.

Change is in the air. The key lies in a global climate deal to reduce greenhouse gas emissions and limit global temperature rise to a scientifically safe level. A deal to catalyze clean energy growth. Most urgently, an agreement must protect and assist those who are most vulnerable from inevitable climate impacts.

What is needed is political will at the highest levels – Presidents, Premiers and Prime Ministers – that translates into rapid progress in the negotiating room. It requires more trust among nations, more imagination, ambition and cooperation.

I expect leaders to roll up their sleeves and speak with – not past – each other. I expect them to intensify efforts to resolve the key political issues that have so far slowed global negotiations to a glacial pace. Ironically, that expression -- until recently -- connoted slowness. But the glaciers I saw a few weeks ago in the Arctic are melting faster than human progress to preserve them.

We must place the planet’s long-term interests ahead of short-term political expediency. National leaders need to be global leaders who take the long view. Today’s threats transcend borders. So, too, must our thinking.

Copenhagen need not resolve all the details. But a successful global climate deal must involve all countries, consistent with their capabilities, working toward a common, long-term goal. Here are my benchmarks for success.

First, every country must do its utmost to reduce emissions from all major sources. Industrialized countries have to strengthen their mitigation targets, which are currently nowhere close to what the IPCC says is needed. Developing countries, too, must slow the rise in their emissions and accelerate green growth as part of their strategies to reduce poverty.

Second, a successful deal must help the most vulnerable to adapt to the inevitable impacts of climate change. This is an ethical imperative as well as a smart investment in a more stable, secure world.

Third, developing countries need funding and technology so they can move more quickly toward low-emissions growth. A deal must also unlock private investment, including through carbon markets. Fourth, resources must be equitably managed and deployed in a way that all countries have a voice.
This year at Copenhagen, we have a powerful opportunity to get on the right side of history. It’s an opportunity not only to avert disaster, but to launch a fundamental transformation of the global economy.
Strong new political winds now fill our sails. Millions of citizens are mobilized. Savvy businesses are charting a cleaner energy course. We must seize this moment to act boldly on climate change. It may not come again anytime soon.
Change is in the air. Let’s seal the deal on a better future for us all.

Somalia – the new axis of conflict

2009-10-31T06:20:00.000-07:00

BY EYASU SOLOMON
The nature of the intractable civil war in Somalia is undergoing a change, adding an
ideological, sectarian dynamic to the confl ict. For the fi rst time in modern Somalia,
Sufi groups under attack are taking up arms and effectively fi ghting Al-Shabaab with
popular support on the rural plains of central Somalia. This new axis of confl ict,
where Islamist fi ghters are battling one another along religious lines, has the potential
of changing the confl ict dynamics in the long run.
Somalis are generally pragmatic and moderate Sufi Muslims.They do not
share the strict, Saudi-inspired Wahhabi interpretation of Islam of the hard-line
Al-Shabaab group.1 Historically, loosely organized Sufi groups rarely entered
the political arena, with the exception of the anti-colonial wars in the 20th
century.2 Over the last two decades of civil war, characterized by a lack of central
government, Sufi leaders had managed to steer clear of clan and political wars, but
this pragmatic and moderate approach came to an end when Al-Shabaab fi ghters
began desecrating their religious shrines in the south of the country late last year.3
An impressive example is Al-Shabaab’s policy in the port city of Kismayo. In
December 2008, the group targeted Sufi sites, among them ancient graves of clerics
and other prominent Sufi s – sites Al-Shabaab deemed un-Islamic. As Sufi scholars
increasingly felt discriminated against and targeted because of their religious
practices, they saw themselves in a religious zero-sum identity confl ict and decided
to take up arms.
A clear, but limited challenge
Recently, Al-Shabaab fi ghters were able to launch two particularly prominent
attacks in their battle against the Transitional Federal Government (TFG) and the
African Union (AU) troops in Mogadishu. On 7 May, Al-Shabaab fi ghters attacked
the TFG only a few blocks away from Villa Somalia, the presidential palace,
thereby showing the apparent weakness of the TFG. On 17 September, Al-Shabaab
successfully attacked the main AU military base with two car bombs in the capital,
killing 17 peacekeepers.
Until very recently, the main Sufi resistance group, Ahlu Sunnah Wal Jama’a
(ASWJ), has been militarily active only in the central Somali region of Galgaduud,
where the major local clans and sub-clans (Habir Gedir, Dir, and Marehan) as well
as Sufi sheikhs have put their support behind ASWJ. While having more armed
fi ghters than Al-Shabaab, they are not as well trained, as ASWJ fi ghters are drawn
from the clan militias which generally lack formal military training. Nevertheless,
the group was able to defeat Al-Shabaab in two strategically crucial towns
connecting southern and northern Somalia. From 1 November until 16 December
2008, ASWJ successfully engaged in fi erce fi ghting with Al-Shabaab in the town
of Guraceel. On 25 January, ASWJ openly engaged Al-Shabaab militias in intense
fi ghting, reportedly killing at least 35 people and injuring more than 60 others in
Dhusamareeb. Subsequently, ASWJ succeeded in driving Al-Shabaab insurgents
out of several towns of the region. In their place, the Sufi movement has established
its own incipient local administration, liaising with UN offi cials and patrolling the
locality. Grassroots support and local clan-backing has allowed this new movement
to transform rapidly from a civil to a military force.4 In addition, ASWJ has openly
come out supporting the new president of the TFG, Sheikh Sharif Ahmed.5 More
recently, ASWJ is reported to be active also outside the Galgaduud region, and have
taken over two towns in the Gedo region in accordance with the TFG.6
It is, however, important to acknowledge that ASWJ is still a small part in
the equation of the fi ght between the TFG and Al-Shabaab. While the religious
opposition to Al-Shabaab and its radical interpretation of Islam is wide and deep in
Somalia, it has not been able to organize itself politically or military on a broader
level. Furthermore, ASWJ itself lacks a political vision and, thus, fi nds it diffi cult to
sustain its rule in the areas it controls.
Al-Shabaab - strengths and weaknesses
It appears that the accomplishments of ASWJ imply two realities. First, the severe
Wahhabi governing methods of Al-Shabaab, which echo those on view in Pakistan’s
Swat Valley and includes stoning and amputations, elicit little local support. In fact,
the same could be observed of all radical Islamic groups in Somalia since the 1990s.
Al-Shabaab gained their performance legitimacy in setting up Islamic courts and
bringing law and order to the areas under their control, giving them strong support
in parts of the country. However, popular resistance to the insurgency today is
reported more frequently and conducted more openly. For example, on 26 March,
hundreds of demonstrators took to the streets in protest against a ban on the sale of
the narcotic Khat. In reaction, Al-Shabaab further intensifi ed its strategy of coercion
and intimidation of the Somali population by carefully selected assassinations and
arrests of clan elders, several of whom have been murdered. In the latest high profi le
assassination, Omar Hashi Aden, the Minister of National Security, was killed along
with 30 other people in a large-scale suicide car bomb in Beletwyne on 19 June,
leading to a strong condemnation by a broad cross-section of Somali society.7
Second, the wide territorial dominance of the jihadists is perhaps more a function
of the lack of any countervailing force than an indicator of any innate strength. In
this sense, Al-Shabaab is benefi ting particularly from the weakness of the other
groups, fi rst and foremost the TFG. As Roland Marchal put it, “Al-Shabaab may
not be so powerful militarily speaking, but it is the smartest to keep the warfare in
conditions that are suitable for its low membership and its lack of popular support”.8
In fact, the movement should be weakened considerably since two of its main
political pillars have been removed by the withdrawal of Ethiopian troops and
the introduction of Sharia law by the new government. Facing a foreign enemy,
segmentary lineage societies close their ranks and overcome their internal splits and
rivalries to fi ght a common enemy. No doubt, this coherence falls apart as soon as
the common enemy disappears. In part, this dynamic is causing popular support to
wane for Al-Shabaab.9
Nevertheless, Al-Shabaab is still able to recruit and attract considerable backing
in certain areas for various motives. Besides ideological reasons, religious or
nationalistic, the movement is also attractive for economic survival as Al-Shabaab
has the means to pay their mainly young fi ghters. In addition, the movement
represents a means of empowerment and certainly provides the ground for sheer
power-seeking people to further their political stance.10
At the same time Al-Shabaab is increasingly becoming aware that they are
increasingly alienating the population in areas they administered according to an
overtly strict reading of Sharia law. Contrary to the perception of Al-Shabaab as
a mere ideology driven movement, it did prove its ability to change its political
strategy in a pragmatic way in order to regain ground: Trying to consolidate its rule,
Al-Shabaab quite successfully adopted a new approach in the city of Baidoa by
building its economic, social and educational infrastructure and holding talks with
traditional clan leaders.
Conclusion
The TFG is attempting to take matters into their own hands. On 21 June it signed an
agreement with Ahlu Sunnah Wal Jama’a in which it agreed to cooperate in political,
security, humanitarian and development areas. At the same time, the TFG appointed
a former offi cial of the Hizbul Islam insurgent group, which fought alongside Al-
Shabaab, Sheikh Yusuf Mohamed Siad Inda’ade, as state defence minister.11 But this
does not constitute a break through in their battle over power with Al-Shabaab.
A closer look at the fi ghting between Al-Shabaab and Ahlu Sunnah Wal Jama’a
shows how fl uid clan loyalties can be in Somalia. For now however, none of these
attempts and changes in the dynamics of Somalia’s civil war have been able to
fundamentally change the current stalemate between the TFG and the insurgent
groups, prolonging the ongoing war.
Georg-Sebastian Holzer
is a Research Assistant at the Johns Hopkins University School of Advanced
International Studies (SAIS) in Washington, DC. He focuses on confl ict management
with a regional specialization on the Horn of Africa.
Notes
1. For a short overview about the Al-Shabaab movement see: Paula Christina Roque,
‘Somalia: Understanding Al-Shabaab’, ISS Situation Report, Institute for Security
Studies, 3 June 2009.
2. Roland Marchal, ‘Islamic Political Dynamics in the Somali Civil War’, in Alex de
Waal (ed.) Islamism and Its Enemies in the Horn of Africa, Indiana University Press
2004, pp. 114-145.
3. Mohamed Mohamed, ‘Somali rage at grave desecration’, BBC 8 June 2009 http://
news.bbc.co.uk/2/hi/africa/8077725.stm
4. ‘Ahlu Sunna Takes Control of Provincial Town’, Shabelle Media Network,
29 January 2009; UN Security Council, ’Report of the Secretary-General on the
situation in Somalia’, 9 March 2009.
5. ‘Islamist Group Supports President Sharif’, Shabelle Media Network, 13
February 2009.
6. ‘Islamist Forces Join Government Troops in Bakol Regio’, Shabelle Media
Network, 27 March 2009; ‘Ahlu Sunnah Take Trade Town Along Kenya Border’,
Garowe Online, 17 August 2009; ‘Ahlu Sunnah Capture Second Town in Gedo
Region’, Garowe Online, 19 August 2009.
7. UN Security Council,’Report of the Secretary-General on the situation in
Somalia’, 20 July 2009.
8. Email correspondence by the author with Roland Marchal, 30 July 2009.
9. Stephanie McCrummen, ‘In a changing Somalia, Islamist forces see support
wane’, Washington Post, 7 August 2009.
10. Ken Menkhaus, ‘Violent Islamic Extremism: Al-Shabaab Recruitment in
America’, Hearing before the Committee on Homeland Security, US Senate, 11
March 2009.
11. Recent events show that the pragmatic alliance between Al-Shabaab and Hizbul
Islam is dissolving. See, e.g. ‘Somalia’s al Shabaab rebels declare war on rivals’,
Reuters, 30 September 2009.

Leader comes and goes but why?

2009-06-25T04:57:00.000-07:00

Leader comes and goes but why?

Zeru Hagos 06/24/09

Why are leaders replaced? Take for example PM Meles. Yes PM Meles has been the top leader for his organization for a while now. But, during his time EPRDF has been transformed from a well oiled fighting machine to a formidable organization that won three successive elections. Under EPRDF Ethiopia has become truly a developing country and an aspiring democratic country! Yet, more is to come and more than ever a strong progressive and articulate leadership is needed. Who ever holds a majority seat in parliament in the coming election the next government will have a daunting task to navigate the country from becoming victim of the economic turmoil the world is in today to a proactive one. And if EPRDF becomes the majority seat holder who is there to lead than PM Meles and his team who have showed resilience and true statesmanship to garner world praise! So why change?

The next government will have a daunting task to manage the turmoil that is engulfing the Horn region from Eritrea to Somalia. The Sudanese referendum that will surely split the country in to north south will certainly require an adept government in Ethiopia to manage the dicey situation there. And the biggest challenge of all, for the coming government will be to earn respect from all EPRDF member organizations in order to pass legislation. It is clear that the parliament is becoming more vibrant and may not tip toe to party disciplines when issues come to the floor. Take the current uproar with the Amhara delegation about the population census! The Census bureau has to visit its counting procedures to find any weakness simply because Amhara MPs who are EPRDF members did not like the result.

If EPRDF chooses a new leader out of the non veteran EPRDF circle, who ever he/she may be will have a daunting task to convince the old guards in each front for their support. I see an erosion of camaraderie if the new leader is a former Derge functionary! For such person to take power at the top while long time EPRDF members who gave it their all are side tracked, is simply an additional burden EPRDF can do without. Thus, why would EPRDF want to change leadership at the top today? And why is Ethiopia’s constitution under pressure from Westerners who want to see leadership change to mirror their way of government?

If leadership change is a must no matter what the situation is then why did EPRDF fail to adopt such language in its internal rule and the country’s constitution for this long? Who really benefits a leadership change today? Not tomorrow but today? Tomorrow I agree there must be for no one is immortal!

Would EPRDFites be happy to see Meles and his government replaced? Would anyone be pleased to see Meles alone go and everybody else remain as is…if so what has Meles done for such treatment? Would a new prime minster solve any issue if he is to continue PM Meles government policy as is? If not which policy do we expect the new prime minister to change? Why can’t Meles continue if no policy change is needed? These are questions I have but I am sure there are more.

I personally think PM Meles, unless his medical condition is forcing him to take it easy, like a good soldier that never says I am tired, must continue for another term or at the very least serve a transitional two to three year time so the new leader is not overwhelmed before he /she gets in to the office. That way Ethiopia’s enemy from far and near will know for the next few years things will remain the same. The huge economic infrastructure development and the Sudanese referendum will be over by then and hopefully there will also be a closure with the Somalia and Eritrean issue.

Some say Ethiopia is ready for an Afar, Oromo, Somali and e.t.c prime minister! Ethiopia has been ready for any competent and pragmatist and farsighted leader since God knows when! There was no tomorrow set aside for an Oromo prime minister by the Ethiopian people. Only a dysfunctional opposition and a confused, “aderby” supporters of EPRDF will advocate for such today! The notion that a prime minister who is an Oromo or a Wolayita or Sidama or an Amhara will solve the perception of TPLF dominance is a false one! The perception is simply created by the opposition to break down the EPRDF! Otherwise an opposition that never recognizes OPDO, ANDM and SEPDM as an organization cannot be interested to see a prime minister out of them! EPRDF should choose its next leaders regardless of race creed and religion!

If a new prime minister or an EPRDF leader is to emerge it should be done based on merits and after a genuine discussion. The discussion should be on what is good for EPRDF and the country not what is good for foreign agents! The merits should be valued against tenacity during trying moments, farsightedness and awareness of geo politics! Above all the new leader should be one who has earned great respect among rank and file members of the EPRDF. For the road ahead is still bumpy and when push comes to shove these rank and file members will come handy! No one certainly wants Kinjit type experience when tough times come! Kinjit leaders and supporters run tail behind to Washington DC leaving behind the country and innocent followers cold dry! Can you imagine a weak and unpopular leader leading the country during events like election 2005 aftermath!

Our Ethiopia needs a stable and progressive government, we should tell Westerners we really are ahead of schedule to become like them considering it took them 200 years to be where they are! After all it took them 200 years to be where they are and still their democratic aspiration is still in progress like ours is!

So why would EPRDF replace Meles today? Do they [EPRDF] not see the situation Ethiopia is in today?

Meles for Mo Ibrahim Prize: The Prize for Achievement in African Leadership1

2009-06-24T00:42:00.000-07:00

Meles for Mo Ibrahim Prize: The Prize for Achievement in African Leadership1

(First appeared in December 2006 and updated June 23,2009)

By: Mulu GS

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Mr. Zena Marcos, I argue that PM Meles Zenawi is not a liability to EPRDF. From my perspective, he is rather the best asset. However, now that he has repeatedly hinted to relieve himself from the daunting job of premiership it is important that we rationally support him to bid for Mo Ibrahim Prize. It could be an impetus for positive thinking and for reassessing his future role in the political development of Ethiopia. The main aim of this article is not to debate with Zena, it is rather to open an intellectual debate on this issue of stepping down from a government position. For starters though, I argue that he qualifies for the prize. I will forward my points for why I believe he deserves it, but first the major points in the prize:

i. It gives a total of $5m prize for Africa's most effective head of state- award winning leaders $5m (£2.7m) over 10 years when they leave office, plus $200,000 (£107,000) a year for life.

ii. The main objective is to remove corruption and improve governance.

iii. It involves one of the best universities in the world -Harvard University will assess how well the president has served his or her people while in office.

iv. It is supported by the world’s best people ever- Nelson Mandela, former US President Bill Clinton and UN Secretary General Kofi Annan.

Now back to my arguments. The gist of my argument is that Meles deserves to work towards getting the Mo Leadership Prize by the end of his term given he transfers power peacefully. As we all do, whenever there is a prize announcement in academic competition or any other competition we try our best to win. We write our applications and essentially nominate our selves and present our work to achieve it. It is not any different here. If the bylaws of the Prize are to nominate oneself by writing an application statement then he should do it. If it is by third party nomination, then we should support his nomination.

Why does Meles deserve this prize? I will give a few highlights that I think are sufficient to demonstrate why he deserves this prize. First and foremost, he is one of the very few leaders in the world who has successfully transformed himself from a second year medical student to a fighter, commander/leader, head of state, economist and intellectual, and from a communist to an architect of developmental state. He has passed through challenges-jungle life, within party fights (the 1984 and the 2000) and the recent election fights with people who have grave hate towards him and his people. Shortly, he is tested!

On the other hand he is a very disciplined man. He values family- sticking to his “amin” first wife and is a family man. He has been seen accompanying his daughter to a high school graduation despite the hectic nature of being head of government. He has made conversations and letter exchanges with school children at several levels. These are characters that everyone envies. After all, we all know how much key role this type of character plays in the USA elections.

He also has other qualities. As far as my knowledge is concerned he is the only leader in the history of Ethiopia who fluently speaks English, Amharic, and Tigrigna. He probably is the only leader who has achieved the highest ladders of education while in office. If the recent news is true he might get a PhD very soon. That would probably make him the first leader to achieve a PhD while in office. He has demonstrated to friends and foe how brilliant he is in articulating the issues that are fundamental for economic development o African countries. His nomination to the Blair African Commission, His recent role in the China-Africa partnership, his recent invited speech in the EU development conference, the prizes and honorary doctorates he has been getting, the recent invited speech at the G20 summit and the invitation to the forthcoming G8 meeting clearly show the high regard he is winning from the international community. He has had a key role in influencing the World Bank and IMF aid policy for the Third World countries. His recent manuscript on the developmental state is, simply put, a great addition to the debate on the possible strategic solutions to the problems of developing countries (especially Africa). What makes it more interesting is that his background is from the poor like one of us.

I am not ignoring the fact that there are those who would like us to believe that he is a monster. There are those who accuse him for every single bad that has happened during his reign. Some called him Grazianni, some Hitler, some worse than Mengistu. And there are some moderate critics who do not like his style of communicating his goodwill to the Ethiopian people and who think he is arrogant. However, history tells us that nobody even Jesus Christ, would pass from this kind of labeling and bashing. I am not saying that he did not make mistakes, probably a lot, but that is part of what being human is. I wonder how many people would volunteer to be leaders of this very poor country and be able to surpass the infinite expectation of Ethiopians of all walks of life.

Some of the shortcomings that I share with my fellow Ethiopians have to do with EPRDF’s handling of the Eritrean issue (I am not against the principle of self determination enshrined in the constitution). My problems are mainly with the fact that why Meles and other leaders of EPRDF were not forthcoming in explaining the rationale for their handling of Eritreans and the Eritrean issue. The monstrosity of the Eritrean regime towards Ethiopians and especially Tigrayans starts from the road blocking of relief food by Shabia during the 84 famine which for any sane person is unforgettable and intolerable. In fact, I do not forget how Meles in his own words described this horrendous event in one of the Yekatit 11 anniversary speeches. Add to this all that happened to Ethiopians who lived in Eritrea which is opposite to what the Eritrean on the Ethiopian side have been enjoying. I am still waiting to hear any justification for this. Frankly, he does not take all the responsibility but as a leader he gets a fair share of the blame.

The debate on whether Meles should stay beyond his current term or not has been in both directions. There are those who nicely argued that having Meles Zenawi stay for one or more terms can be advantageous. For instance, Getachew Mequannent3 gives three reasons, which all make sense (1) he has increasingly become self-conscious of his reputation and this means that he will be pushing ahead with policy reforms and the democratization process, (2) he has spent years learning and accumulating political and diplomatic experiences, which are assets and (3) he has a natural ability for sharp articulation of development issues and this will promote a good image of Ethiopia. Getachew argues that in many cases what matters in politics is not a change of leadership, but a commitment to working towards reducing poverty which Meles has been doing. There are also others who have beautifully argued otherwise. For instance, Mekonnen Kassa4 argues that by peacefully transferring power Meles can leave behind a great Ethiopian legacy for the first time in thousands of years of our existence. Similarly, Belihu Aychilim argued that, “even for those who support most ideas behind the present government, the devolving of power from Meles to another fresh blood is a matter of credibility and renewal of commitment to the EPRDF. It is important to be assured that EPRDF could handle change and continuity without having to narrowly rely on a single individual and clique. Meles should take the road less traveled - which is always the difficult path.”

I do like both sides of the debate and frankly I am torn in between. However, if he has enough of public service, the key to be eligible to the Mo Prize is going to be the peaceful transfer of power to his successor. And I pray to God to help him in this respect.

1 http://www.moibrahimfoundation.org/mif_prize.html

2 http://www.aigaforum.com/Commentary_on_should_PM_Meles.htm

3 http://www.aigaforum.com/Reflection_on_Meles_Zenawi_s_Possible_Retirement.htm

4 http://www.aigaforum.com/Meles_comment.pdf

Ethiopia plans new rail system

2009-06-15T02:58:00.002-07:00

Multiple Crises Affecting Development

2009-06-09T05:46:00.000-07:00

By:-Eyasu Solomon

The ongoing global financial and economic crisis has the potential to usher in a period of a global recession that may seriously undermine all countries’ process of economic growth and transformation, and also jeopardize efforts to widen economic and social opportunities and improve the livelihoods of ordinary people everywhere. In particular, the crisis may put a brake on and also reverse efforts in developing countries and by the international community to assure development gains from trade, promoting achievement of internationally agreed development goals including the Millennium Development Goals (MDGs) by 2015. The crisis has triggered a slowdown in global economic growth that is manifesting itself in a demand-driven fall in international trade exacerbated by the deficit of
credit and trade finance; falling commodity prices; declining remittances; contracting foreign direct investment (FDI); and the potential of declining official development assistance (ODA). These effects have been superimposed onto the ongoing global food crisis, volatile energy prices, and climate change challenges. The aggregate impact is such that most developing countries are being heavily hurt through declining exports, rising unemployment, and thus falling family incomes, bringing millions of people back into poverty or aggravating the conditions of those in extreme poverty. This has given rise to the most significant challenge facing the global community today – how to focus on buttressing development and poverty-reduction efforts globally and in developing countries, and on setting in place the conditions that will avert future crises and facilitate a sustainable process of economic transformation for all countries.
By virtue of globalization, the moment the financial crisis hit the real economy and became a global economic crisis, it was rapidly transmitted to many developing countries through a contraction in trade finance and a slowdown in demand affecting bilateral trade flows. These transmission channels were particularly visible in sectors composed of global production and supply chains.
As most developing countries are heavily dependent on developed country markets, the slump in demand from latter due to the crisis has had an adverse impact on the former.
The world economy is currently facing a severe global crisis that spilled from financial sector to the real economy in the last quarter of 2008, leading to steep falls in industrial production and a rapid decrease in international trade, and to a slowdown in foreign direct investments and potentially in development assistance. The crisis has brought about a slump in economic growth in most countries, and has been accompanied globally by increases in unemployment. The current global crisis – preceded by the food crisis, volatile energy prices and climate change challenge – is a major blow to attaining the MDGs for developing countries. Addressing the dampening impact of the crisis on international trade and investment to restore growth, and reviewing development policies and partnerships to create sustainable practices and greater resilience to future shocks, must be key priorities in the multilateral agenda.
Most developing countries are now closely linked with the global economy by trade and foreign direct investment flows, and their economies are more sensitive to falling international demand (and
conversely to expanding demand). The degree of exposure and integration of developing countries’ economies to external markets has greatly increased in recent years. Developing countries’ exports on average accounted for more than half of their gross domestic product (GDP) in 2007, up from about a quarter of GDP in 1995.
The ongoing reduction of trade and investment flows is starting to restrain the development prospects of developing countries. They are currently seriously hurt through falling commodity prices, demand driven drops in exports exacerbated by the deficit of credit and trade finance, capital outflows, declining remittances, and contracting investment. The prospects are more dire for export-oriented developing countries, especially those with a small domestic economy, where the reduction in international demand is more likely to raise unemployment. In some developing countries, workers are shifting out of dynamic export-oriented sectors into lower-productivity activities. Potentially, all these effects could bring millions of people back into poverty.
The decrease in merchandise trade appears to be affecting all developing regions and most types of goods. Moreover, South–South trade, which has been the most dynamic component of world trade for over a decade, is declining too, especially intra-Asian trade. The quick contraction of developing countries’ manufacturing trade is largely due to today’s highly globalized production and marketing schemes. Among the most affected sectors are automotive products, office and telecommunications equipment, and electronics, as well as textiles and clothing.
Many commodity exporters, particularly those in West Asia, Africa, and countries with economies in transition that benefited from the commodity price boom with considerable terms-of-trade gains, are now facing the downside of their commodity dependence, manifested in a substantial shrinking of export revenues. More than 90 developing countries earn at least 50 per cent of their exports from commodities (47 of them being non-fuel commodity exporters). Most developing countries are now closely linked to the global economy by trade and FDI flows. As a consequence of the crisis, the significant reduction of these flows is starting to restrain their development perspectives. Developing countries are currently seriously hurt through falling commodity prices, demand driven drops in exports exacerbated by the deficit of credit and trade finance, capital outflows, declining remittances, and contracting investment. The prospects are more dire for export-oriented developing countries, especially those with a small domestic economy, where the reduction in international demand is more likely to curtail their exports and raise unemployment. As observed in some developing countries, workers are increasingly shifting out of dynamic export oriented sectors into lower-productivity activities (and moving out of urban areas back into rural areas).
UNCTAD currently estimates world merchandise trade to fall between 6 and 8 per cent in 2009. Exports from developing countries and countries with economies in transition could potentially decline in the range of 7 to 9 per cent in volume, in 2009. Developed countries’ exports are projected to decline by up to 8 per cent this year. The trade contraction in value would be much greater.
The crisis is also spreading to trade in services and to service sectors in general. Maritime transport is particularly affected, as are tourism and construction services. There is also a growing reduction in the employment levels of migrant workers from developing countries. This is expected to lead to a further fall in remittance inflows to developing countries, which began to slow down in 2008. Conversely, trade in ICT-enabled services appears to be less influenced by the economic downturn, as companies see the offshoring of services as one method of enhancing their competitiveness.
The crisis has translated into a sharp decline in FDI inflows, both for developed and developing countries. UNCTAD estimates that global FDI inflows declined by 15 per cent in 2008. An outright decline in FDI inflows to developing countries is very likely in 2009. FDI flows to financial services, automotive industries, building materials, intermediate goods and some consumption goods are among the most significantly affected, but so is FDI into activities ranging from the primary sector to non financial services. FDI outflows from the South are also set to slow down, but to a lesser degree than those from the North. Thus the share of developing countries in global FDI outflows continues to rise, highlighting an increasing presence of transnational corporations (TNCs) from the South.
Multilateral policy responses are required to achieve a sustained global economic recovery. These need to address developing countries’ concerns and enable them to continue to grow through trade, investment, remittances, aid, and technological innovation. Strategic intervention by governments is also required to provide new directions in order to achieve the United Nations MDGs.
At the international level, restoring trade finance and mitigating the risk of increased protectionism are immediate challenges. Concluding the World Trade Organization (WTO) Doha Round on balanced and pro-development terms will help, as well as harvesting some of the key development deliverables such duty-free and quota-free treatment for least developed countries (LDCs). Maintaining and increasing ODA, including through aid for trade, will be important too, especially to build and strengthen productive capacities of developing countries, and related trade-efficiency and facilitation infrastructure.
At the interregional and regional levels, expanding and diversifying South–South cooperation is a viable solution to support and to increase developing countries’ trade and investment performance.
The crisis offers opportunities for strengthening South–South trade and investment linkages, including through reshaping the existing production supply chains (and creating more regional demand).
Available policy instruments such as the Global System of Trade Preferences among Developing Countries (GSTP) and more comprehensive and effective regional trade and investment agreements should be consolidated and enhanced.
At the national level, the crisis has made it timely to review development strategies so as to make them more sustainable against future external shocks, focused on delivering broad-based and inclusive development, and responsive to the imperatives of preserving the environment, while also providing new economic opportunities. Developing countries need to continue to address income inequality and to invest more in education, training, trade-adjustment assistance, health care, community development and tax policy. The role of the state in promoting development has increased in light of the crisis, and there is a need to reflect on how this role can be effectively articulated.
A major challenge for developing countries is to continue to attract foreign investment during the crisis to stimulate economic activities, especially for such investment that serves long-term development goals and enhances competitiveness. Public investment programmes can help. Public–private partnerships are also important. Bilateral and regional investment agreements can encourage FDI. However, national efforts to maintain and attract foreign investment must not result in “race to the bottom” policies.
The United Nations – and in particular UNCTAD – has a special role to play in monitoring the impact of the crisis on trade and development, suggesting coping policies and measures, and building a new consensus on sound and suitable strategies at the national, regional and global level. Given the global span of the crisis, inter-agency collaboration will be crucial.
These impacts are being combined with the effects of the ongoing food crisis, volatile energy prices, and the climate change challenge
1). Many
developing countries are also dependent on ODA, which may shrink during the crisis. Potentially, the aggregate of all these effects could bring millions of people back into poverty,2 and worsen the conditions of those presently living in extreme poverty. This threatens to stall and reverse many years of efforts to achieve internationally agreed development goals, including the MDGs.
The global crisis and its lessons will be subject to extensive in-depth analyses as it progresses. There are many challenges to be addressed, but there are also policy areas which countries can develop – nationally and globally – to sustain trade and development. One challenge is to analyse specific development implications of the crisis, and suggest policy proposals to cope with its detrimental impacts in the short term and rethink development policy for the medium-to-long term. Significantly, signs are emerging of fundamental shifts in the way market economies operate and in the role of governments in economic activities. The crisis affecting development may require rethinking of the whole economic and social paradigm that has prevailed over the last decades and has nurtured the process of liberalization and globalization. It may involve the articulation of ideas on trade and trade-related policies and sectors that have shown some resilience to the crises and can serve as a bulwark on which to restore confidence, build recovery and foster inclusive development. For the moment, however, it is still too early to assess the real depth of the crisis and its likely duration, and also the effectiveness of the mitigating measures being undertaken by various governments.
Countries are responding to the global crisis. At the national level, some countries, both developed and developing, have undertaken national stimulus packages to mitigate the detrimental impact, especially by providing credit, supporting affected domestic industries, and promoting jobs. At the level of the G20, leaders of the G20 countries met in London in April 2009 and pledged to undertake and promote measures to restore credit, growth and jobs in the world economy. At the global level, the United Nations General Assembly has agreed to convene “a United Nations conference at the highest level on the world financial and economic crisis and its impact on development” from 1 to 3 June 2009. This provides an opportunity for the United Nations as a whole to reflect on the causes of the crisis, assess the impacts on all countries, and suggest adequate responses to avoid a recurrence of the crisis and to restore global economic stability. The preparatory process and the conference will draw upon the report of the Commission of Experts of the President of the General Assembly on Reforms of the International Monetary and Financial System. These, and other initiatives, are indicative of the commitment of countries and the international community to comprehensively addressing the crisis and preventing it from ushering in a sustained period of global recession.

Chinese Investment in Ethiopia: Developmental Opportunity or Deepening China’s New Mercantilism?

2009-05-25T04:44:00.001-07:00

Asayehgn Desta (Ph.D), Sarlo Distinguished Professor of Business

Economics, Dominican University of California

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Contrary to Western debt and assistance marked by various forms of economic and political overtones, China, using the South-South Cooperation, is in the process of bestowing a mix of loans with generous terms, debt forgiveness, infrastructure development, and other assistance to African nations so that they could be relieved from Western cultural, political, and economic hegemony. African governments have appreciated and responded enthusiastically to this new source of bottom-up, multiple, bilateral investment, trade, and aid because China has professed a willingness to ignore the political, conditional terms that characterize Western assistance.

China’s deepening involvement across Africa can be viewed from two perspectives. The protagonists of political warfare theory argue that China’s policy in Africa is a nonviolent instrument of grand strategy. It involves coordinated activities that could precipitate in tangible effects on intended targets such as economic aid and development assistance, as well as training, equipping, and arming military and security forces to achieve political and economic influence. The South-South development cooperation school of thought, on the other hand, views China’s increased aid, trade, and investment in Africa as a means to foster Africa’s self-sufficiency and sustainable development in the 21st century.

Therefore, the empirical part of this study will attempt to advance the understanding and rationalization of the various Chinese investments in Ethiopia. More specifically, the central motive of this study was to investigate if the Ethio-Chinese investments indicate a win-win strategy. The South-South cooperative win-win ventures are supposed to bring proportional benefits through trade flows, foreign domestic flows, technology transfer, and integration in global value chains, in addition to aid flows, which otherwise the partners would not have access to before entering into these relations. The four case studies seriously challenge the argument of political warfare theorists that China’s investment in Ethiopia would perpetuate underdevelopment through exploitation, extraction, and destruction of Ethiopia’s resources and industrial capacity. Except for the negative environmental externalities caused by the Sino-Ethiopian investments, the case studies have demonstrated that Ethiopia has substantially benefited from the Chinese cooperative investments. The Chinese investments in Ethiopia are not complementary but appear to be aligned very closely with the South-South cooperative strategies and goals.

(The entire manuscript can be obtained from the author.)

Summary and Conclusion

As the Chinese economy booms, Chinese multinational corporations are embarking on an acquisition drive to capture the oil, natural resources, and unexploited markets of Africa to sustain its rapid economic growth. Based on the current Chinese investments and co-development projects existing in Africa, supporters of Chinese investment in Africa argue that the recent increase in Africa’s gross domestic product is because of Chinese investment. The roads, bridges, and dams built by Chinese firms in Africa are low cost, good quality, and completed in a fraction of the time. Unlike the Western investments in Africa, the Chinese state-owned enterprises provide human and capital assistance to Africa without any conditionality.

Critics on the other hand argue that China has shipped entire workforces across to Africa for many of its projects. In addition, China has flooded the African markets with cheap consumer goods and devastated the local textile and other consumer product industries. In addition, some of the Afro-pessimistic intellectuals argue that yet there is little evidence whether China’s renewed, and most probably lasting involvement in Africa will serve the continent better than the decades of aid from Western governments, which have scarcely delivered on their promises. Lumumba-Kasongo argues that under the pretext of the SSC model China has introduced the “Beijing Consensus,” which is to a large extent based on China’s self-representation as Africa’s help-mate rather than the “Washington Consensus,” “which is the dogma of White House, Pentagon, the Bank, International Monetary Fund, and multinationals representing the interest of big private business (2007).”

Contrary to the two diametrically opposed perspectives of the Chinese engagement in Africa as presented above, the point of view of Holstag (2006) is eclectic. According to Holstag, China’s vision on its economic relations with Africa is beckoned with sweet carrots largely tailored to derive goodwill and permit it to do business suavely (2006).

The three perspectives of the Chinese engagement in Africa are very instructive. But in order to have a clear picture, the three points of view need to be rigorously analyzed from the point of view of an actual African country. For example, for the last five years, Ethiopia has achieved a high and sustained rate of growth. The presence and conduct of China’s foreign direct investment in Ethiopia since 2000 is fast becoming one of the fronts in reshaping Ethiopia’s economic architecture. Given the fact that Ethiopia has been the major beneficiary of Chinese investment and cooperative development projects, the question that needs to be pondered is: can some of Ethiopia’s spectacular growth rate be attributed to the Chinese investments? More specifically, have the Chinese cooperative investment footprints enabled the Ethiopian economy to master highly valued technology and generate productive employment or have the various Chinese investments destined Ethiopia’s economy to be dependent on the Beijing Consensus model?

The Chinese investors seem to have carefully engineered their entry strategy into Ethiopia. With considerable oscillation and no discernible trend before 1991, China devised trade and biddings on government sponsored contractual projects, mainly infrastructural landscape, to gain access and expand into Ethiopia’s downstream resources. With a wave of privatization and structural reforms that gained momentum in Ethiopia spurred a flurry of various types of foreign direct investments that originated from the Southern Countries (i.e., China, India, South Africa, etc.). For example, from 1992 to 2005, Chinese investments in Ethiopia got organized under the wholly owned type of organizational structure (i.e., 86 percent wholly-owned compared to 12 percent in joint-ventures) in order for Chinese companies to acquire upstream assets (See Table 3). In recent years, the presence and conduct of China’s foreign direct investment in Ethiopia is fast becoming one of the prominent features of the Ethiopian economic landscape either by infrastructure in exchange for access to natural resources or by denoting Chinese development assistance or providing favorable lending and capital contribution.

However, though Ethiopia intends to use Chinese cooperative investment as means of enhancing its regional development, the inflow of Chinese investment has not been equally shared. Geographically, most of the Chinese Cooperative investments are located within the Addis Ababa and Oromia Regional State. While 78 of the wholly owned Chinese companies are located in the Addis Ababa Regional Zone and about 9 percent are situated in the Oromia Regional State, without any significant catching up by the other regional zones. In addition, of the 103 joint-venture companies, 53 percent are situated within the Addis Ababa region while 30 percent are reside within the Oromia Regional State. In addition, 22 percent of the small- and medium-size state-owned Chinese Enterprises operating in Ethiopia are fully operational while the remaining 78 percent (647/828) are partially or yet to be fully implemented. To fully implement the various investments, the Chinese investors have employed 44 percent (52,714/119,670) as full-time workers and 56 percent (66,956/119,670) as temporary workers.

Ethiopia’s main objectives for allowing Chinese investment to operate in country are to have access to high technology, to increase employment, to acquire know-how, to increase foreign exchange through export, and to benefit from both backward and forward linkages. Thus, the four Sino-Ethiopian Cooperative Investment case studies given above are analyzed in terms of their effects on 1) Ownership and Human Capital 2) Production Management and Operations, 3) Export effects 4)Technological Transfers 5) Efficiency 6) Foreign Exchange effects7) Local Content requirements and spillover effects, and 8) Environmental effects of the Sino-Ethiopian investments. However, since the analysis is based on four case studies, it needs to be underlined that the results of these case studies are anecdotally based and are not sufficient to generalize about characteristics of the entire Sino-Ethiopia Cooperative investments. Also, it needs to underlined that host countries will not be able to capture the full benefits associated with foreign direct investment until they reach a certain threshold level in terms of educational attainment, provision of infrastructure services, local technological capabilities, and development of local financial markets, thus the analytical outcome of this study needs to considered tentative.

In terms of ownership and human capital, most of the Chinese investments are wholly owned. When Chinese enter a joint-venture or create a wholly owned subsidiary, they send experienced managers or top specialists from abroad. Based on the four case studies, while the CEOs of the three wholly owned Chinese companies are Chinese, the CEO of the Sino-Ethiopia Associate Africa joint-venture company is an Ethiopian. Given the Chinese investors in Ethiopia are unfamiliar with cultural makeup of the local situation and the Ethiopian labor laws that pertain to wages, holidays, housing and other benefits, in the solely owned Chinese firms and the joint venture firm, Ethiopian employees seemed to be in charge of the human resources management. In view of this, it can be assumed that there exists a smooth cross-cultural communication within the enterprises and between the enterprise and its external suppliers and customers.

The process of inviting foreign investors to developing countries is a means to increase the valued-added exports of the host country. Based on the Sino-Ethiopia Associate Africa pharmaceutical joint venture company, it is possible to argue that both partners handle the international marketing sector. Since the Chinese marketing officers are well versed in some aspects of the international marketing, they might have trained local employees in export management and foreign marketing strategies. Also, it is possible that local firms could have acquired international marketing techniques by hiring some of the Ethiopian workers who might have left the Sino-Ethiopian joint venture to start their own businesses. Nevertheless, since the three wholly owned enterprises mostly produce for the domestic market, it is very likely that they might have facilitated some type of interaction with local suppliers and domestic customers. It is likely that the wholly owned enterprises mostly produce for the Ethiopian domestic market and have done little to integrate Ethiopian products to the global value chain. Thus based on the three cases, it is possible to ascertain that the Chinese wholly owned companies don’t seem to act as a platform for exports and their goal is to seek for themselves efficiency in their production process by taking care of Ethiopia’s factors of endowment. The wholly owned Sino-Africa produces leather products that are designed to compete in the international market—it does not seem to crowd out the low quality local products. The Sino-Ethiopia pharmaceutical joint venture enterprise is of higher quality base and is more efficient; therefore, it is complementary and generates foreign exchanges indispensable for the country. Nonetheless, since the Ethiopian employees do not receive the necessary training in international marketing know-how, the leather products seem to be totally dependent on the Chinese joint venture partners in order to promote and distribute their products in overseas markets. In addition, as argued by GebreEgzibher, “The major types of products exported to China are agricultural products which are unprocessed or semi-processed. These include skins, leather and leather products, oil seeds, pulses, coffee, and tantalum. The bulk of leather, skin, and hides are semi-processed. Ethiopia has huge potential in other products which are allowed to be exported to China. These include coffee, natural gum, bee wax, edible oil, horticultural and textile products, precious stones, and other organic products.” (2006)

Typically, the Chinese PLCs arrive in Africa with their work force. In line with this, the project managers, engineers, and technicians working in Ethiopian government project contracts and wholly owned enterprises are mostly Chinese. Even in the Sino-Ethiopia Associate Africa joint firm, research and product design is forged in the headquarters rather than basing it on an equity ratio to include the Ethiopian partner. In terms of efficiency, since more than 50 percent of input materials executed by the Sino-Ethiopian firms come from China, it is very difficult to ascertain the contribution of efficiency to the new products made by the Sino-Ethiopian investments.

Most of the foreign exchange generally used for the Chinese investments in Ethiopia originates from the China’s EXIM and China’s development banks. For instance, Export-Import Bank of China has been granting long-term and short-term loans to companies investing abroad to purchase Chinese equipment and technology necessary to build factories abroad (Zhaoxi, 2009). Thus, the projects in Ethiopia have enabled it to conserve the foreign exchange, which it could have spent on establishing these projects, and helped it to acquire the necessary foreign exchange by selling some of the Sino-Ethiopian investment products in the overseas market.

While the dependency school theory views foreign investment from developed countries at the core of the world economic system as harmful to the long-term economic growth of developing countries out in the periphery, other studies seem to demonstrate that foreign direct investors can potentially benefit domestic firms through spillover effects. Spillover effects are therefore regarded as a very important conduit through which foreign direct investment promotes economic growth in the host country. Though the spillover effect of FDI on the productivity growth of local firms does not occur automatically (See, JBIC, 2002), based on the incentives given by the Ethiopian Government to Chinese investors, the four case studies utilize local content. Adhering to backward linkages, the Chinese investors purchase their factors of production from local suppliers. In addition, since they mostly sell their outputs in the domestic market, they have contributed to forward linkages. The four case studies act in creating complementary activities rather than “crowding out” domestic firms. In short, the Sino-Ethiopian foreign investments have forced local firms to restructure themselves to be more competitive and adequately fulfill the domestic demand, thereby maintaining their market shares. Thus, the Chinese investments have contributed to positive productivity spillovers to the Ethiopian economy.

Since the 1992 Earth Summit in Rio de Janeiro, the environmental and social dimensions of foreign investment have become a matter of intense controversy between certain home and host countries. For example in Ethiopia, to attract the Chinese investors, the Ethiopian government seems to covertly relax the enforcement of the environmental standards. The Chinese contractual-based projects, wholly owned, and the joint venture cases analyzed in this paper are by and large operating in ecologically sensitive regions. They are facing serious environmental problems because the Ethiopian Government seems to have prioritized its short-term economic growth over the achievement of environmentally sustainable economic growth in the long run. Ethiopian environmental protection officers at each level of the political system do not seem to fine Chinese investors for their transgressions or for negatively imprinting their environmental footprints on the country, or they fail to encourage the Chinese investors to adopt production techniques that are less harmful to the Ethiopian environment. Unlike other international financial institutions, the Chinese investors and financiers (such as the Export-Import Bank of China) fail to undertake their environmental guidelines when lending the concessional loans as part of the country’s official development assistance program (See, Bosshard, 2008). Undoubtedly, Chinese investments in Ethiopia are an indispensable part of the economic system (they have contributed to infrastructural development, provide capital, new technologies, modern management know- how, and enhanced demonstration effects). Nonetheless, little or no attention is paid by the Ethiopian Government to check the environmental implications of most of the undertaken Sino-Ethiopian investment case studies.

It needs to be underlined here that host countries will not be able to capture the full benefits associated with foreign direct investment until they reach a certain threshold level in terms of educational attainment, provision of infrastructure services, local technological capabilities and development of local financial markets. As an essential element of avoiding economic and social disparities among the different regions, the Ethiopian government needs to enhance the attractiveness of Ethiopia’s hinterland and other relatively neglected regions by 1) undertaking fundamental infrastructural development (i.e., electricity, water, good transport, and telecommunications), 2) improving and encouraging labor mobility to the undeveloped regions by creating schools, hospitals, parks, etc., 3) create local development agencies to promote FDI in each region. In short, further work is necessary to untangle the effects of social responsibility, to enforce environmental safeguards, to train local labor, and to transfer the technology of the Chinese cooperative investments into the Ethiopian economy.

Though anecdotally focused, the modest contributions upon which we hope other researchers will build is that more case studies need to be collected to analyze if Chinese investments in Ethiopia are politically motivated or are meant to fulfill the ideals of the SSC investments. Nonetheless, based on Lummumba-Kasongo’s argument that according to the win-win approach theory, the SSC ventures are supposed to induce “…liberal economic cooperation through trade flows (export and import relations), foreign domestic flows, technology transfer and integration in global value chains, and aid flows, should bring proportional benefits, which otherwise the partners would not have access to before entering into these relations” (2007); it is possible to ascertain that in the short term Ethiopia has substantially benefited from the Chinese cooperative investments. Thus, the argument of the proponents of political warfare theory—that China’s investment in Ethiopia would perpetuate underdevelopment through exploitation, extraction, and destruction of Ethiopia’s resources and industrial capacity—needs to be challenged at this juncture. As outlined by China’s politico-diplomatic “African Strategy,” it is quite obvious that China has shown its strategic interest in Africa and has particularly mapped out its interest in Ethiopia. Except for their significant negative environmental effects it is perpetuating on the Ethiopian soil at this juncture, it possible to assert that China’s investment in Ethiopia is closely aligning with the SSCs stated goals. In assessing the environmental impact, it should be noted that some of the negative externalities could have been easily corrected if the Ethiopian authorities had proactively asked the Chinese enterprises to adhere to the Chinese domestic environmental policy (See, Bosshard, 2008). Thus, the tentative conclusion we can arrive at from the four case studies is that by using its new standards of economic diplomacy China is slowly gaining ground in Ethiopia. Nevertheless, it looks farfetched to make assertions like the proponents of “New Mercantilism” school of thought—that “China’s rise confirms the current position of African countries: that of a commodity supplier and a modest consumer’s market” (Holslang, 2006).

Endnotes:

Bosshad, P. (2008). “China’s Environmental Footprints in Africa.” China in Africa Policy. China in Africa Project of the SA Institute of International Affairs (SAIIA), No. 3, April 2008.

GebreEgziabher, T. “The Developmental Impact of China and India on Ethiopia with Emphasis on Small Scale Footwear Producers.” Development Policy Research Unit, Johannesburg, South Africa (October 18-20, 2006).

Holslag, J. (2006). “China’s New Mercantilism in Central Africa.” African and Asian Studies, Vol. 5, No. 2, 15-16.

Lumumba-Kasongo, T. (2007). “China-Africa Relations in the Post-Cold War Era: Dialectics of Rethinking South-South Dialogue.” CODESRIA Bulletin, No. 1 & 2, 8-16.

Zhaoxi, L. (2009). “China’s Outward Foreign Direct Investment.” Chinese Multinationals, Jean-Paul Larcon [ed], Singapore: World Scientific Publishing, Co. Pte. Ltd., 49.

President Issayas lectures the World, masquerading as defender of Ethiopia Unity

2009-05-25T01:04:00.000-07:00

(MOFA 05/22/09):- President Issayas is taking the opportunity of Eritrea’s 16th anniversary of independence (May 24) to offer the region, Africa and the Middle East, his thoughts on world and regional problem, and at length. In a whole series of interviews, with regional media and those in the Middle East, and more widely, he has been telling the region, Africa, and indeed the world, how to behave and pointing out where they have all been going wrong. Every night for weeks, viewers of Eritrean TV have been able to hear their President’s thoughts at considerable length.

President Issayas finds little to welcome in the world or even in Eritrea. The words that most commonly appear are challenge, conspiracy, hostility, sacrifice, hard work and yet more hard work. The rewards are all far in the future; and Eritrea is always the target. “The United Nations, including the Security Council, has become an unjust and inequitable tool of a few nations” indulging in “illegal and unconstructive” positions, as well as baseless slanders against Eritrea over the supply of arms to Al-Shabaab and opponents of the Somali Government, although the Somali Prime Minister said only this week that the Somali Government had detailed evidence of arms flights arriving from Eritrea. President Issayas told Egyptian State TV this week that the problems in Somalia mainly emanate from the illegal actions of the UN Security Council itself. In a comprehensive attack on the Council, President Issayas claimed it had taken illegal and unconstructive positions, breaching the UN Charter and international law. This, he claimed, had caused the present vacuum in Somalia and become the source for piracy and other activities. He said a government “imposed” from outside had further aggravated the problem. In this context he told Kenyan TV that IGAD was a tool in the service of foreign agendas and was the source of the problem in Somalia. Eritrea, he said, expected nothing good from such an impotent organization and this was why it had suspended its membership.

The African Union came in for similar strictures as doing nothing more useful than “talking about a vacuum”. He referred to the behaviour of its leaders as corrupt and despicable, and in this connection he had much to say about democracy and the media in Africa. According to President Issayas, (talking to SABC TV at the weekend) Africa needs “genuine” democracy. Surprisingly, in view of South Africa’s recent Presidential election, he specifically noted that the South African experience proved that one cannot speak of real democracy when holding elections in which there is no equitable distribution of resources and where the majority of the population lived below the poverty line. President Issayas’ version of democracy, which ignores elections or political parties, does not equate with other peoples’ views. He is against such “meaningless exercises or manifestations of ostentatious behaviour”. In fact, democracy is an ideal and a set of institutions of practices. As an ideal it involves the concept that members of a group should have the determining control over rules and policies, and that members of the group should treat each other as equals. In a modern state this ideal is realized through a framework of citizens' rights, institutions for representative and accountable government (in particular through a freely elected parliament), an active civil society and a number of mediatory elements of which the most obvious are political parties and an independent media. None of these are present in Eritrea and President Issayas specifically rejects most of these, even claiming, in defiance of Eritrea’s still unimplemented constitution that the people of Eritrea do not want either political parties or an independent media. It was in an interview with Al-Jazeera last year that the President actually put a time frame on elections. Eritrea would have, he said, to wait three or four decades before it held elections, and possibly longer. On the media, President Issayas claimed there was no free press any where in the world today. However the Eritrean people, he claimed, possessed media organs that served as forums for expressing their views and opinions as well as providing them with correct and objective information. Eritrea, of course, has had no independent media outlets since they were all closed down abruptly in 2001 and at least two dozen journalists detained and dozens more exiled.

Few international bodies or countries have escaped President Issayas’ attacks: “conspiracies and hostilities weaved in the name of regional, international and non-governmental organizations,…under the pretext of free press or [humanitarian activities] or…charity are some of the instruments of neo-colonialism masterminded by intelligence agencies.” The US has been one of the President’s main targets. He said it has a strategy of domination through creating problems and crises with the aim of strengthening US influence throughout the region. He attacked the CIA for encouraging and sponsoring human trafficking and encouraging Eritrean youth to flee their country. Hundreds of Eritreans cross into Ethiopia and Sudan every months to avoid conscription and repression. President Issayas told Asharq Alawat newspaper that lying was the culture of the CIA and the “baseless” anti-Eritrean defamatory campaign currently including allegations of Israeli and Iranian bases in Eritrea was no more than a continuation of this historic activity.

Uganda and Burundi are attacked for sending forces for AMISOM in Somalia. They are categorized as far from stable countries, experiencing civil unrest as well as internal opposition. These governments should, said President Issayas, concentrate on their own problems rather than meddle elsewhere. Indeed, the only viable solution for Somalia, said President Issayas was for outsiders to stop meddling in its affairs. He did not include Eritrea in this however. Eritrea’s support for the Somali people was, he said, a moral and legal obligation; and peace and stability could only be achieved by creating a conducive ground for the Somali people to resolve the issue themselves. Kenya was held responsible for the disappearance of three Eritrean journalists in Mogadishu and President Issayas added, ominously, that Eritrea would never overlook the issue. Last weekend it was the turn of long-time ally, the Sudanese Peoples Liberation Movement. President Issayas, claiming he had the right to criticize the organization, attacked it for failing to fulfill its commitments to the people of Sudan, for corruption and for failing to be definitive on unity or separation.

Perhaps, most bizarrely, in one four hour interview with what claims to be an Ethiopian website though undoubtedly in the pay of the Eritrean Government, President Issayas even tried to portray himself as a defender of Ethiopian unity. The interview indeed appears designed to allow President Issayas to appear in this guise. The truth of the matter is that no other person has worked so tirelessly for the demise of Ethiopia as a country. This is by no means an exaggeration. President Issayas has never been supportive of Ethiopian unity as his current efforts at destabilization make all too clear. Ethiopian officials, of course, are privy to what President Issayas was telling many African leaders during the war between Eritrea and Ethiopia (1998-2000): there is no such thing as Ethiopia and what there is, is no more than a shadow of a country – a country that cannot be taken seriously as a state. In terms of historical background, we would remember what President Issayas told an American, Paul Henze, on 11th March 1991, before he entered Asmara:

“The only reason that there is an Ethiopia is that the US needed it for the Cold War, and recreated it, otherwise it would have disappeared at the end of World War II.”

Tilahun-The Hale Comet

2009-04-21T03:13:00.001-07:00

Tilahun-The Hale Comet

Do you ever find out that some words lost their magic when you need them most?
That is how I felt now. Tilahun is too big to fit in adjectives like the well known, legendary, the king, the renowned etc. He is just larger than life. But let me call him the king as most people do. Yes, the king is dead. The king that reigned in Ethiopian music scene for the last five decades is dead. Now he had gone for good. But he will remain with us for long as he reigned in our heart for half a century. And he will live in the heart of the coming generation too since he left behind masterpieces that can transcend generations to come.

Tilahun is a household name in Ethiopia. Who else is there in Ethiopia that doesn’t know who Tilahun is? He lived with us in every situation; he lived with us in our ups and downs, in our joy, in our sorrow, in our political turmoil, in our social instability. What subject matter is there that we lived and that Tilahun didn’t sing about? Nothing! Tilahun was there in our personal life that we consider unforgettable. How many of us are there who remember our first love when we listen his songs! How many of us are there who remember the hours we spent in tea- rooms of Addis in our youth listening his songs! How many of us cried longing for our motherland listening Tilahun singing “Selamtaye Yidress”! How many of us courted our would be wives listening his songs! How many of us named our kids after his name to show that we are his loyal fans!

Tilahun was a walking history that embodied the narrative of 5 decades of our lives in his songs. There is nothing that Tilahun did not touch in our life-say it politics, economy, patriotism, love, sorrow etc. Let’s just see some of the songs that reflect the milestones that shaped our political and social history. Tilahun sang almost about all of them directly or indirectly. Just remember the 1953 coup d’etat. What song comes to your mind? “Selechegn, Merergn Enen”(I can’t stand it anymore”) Yes, he paid the price for that song. He was imprisoned because that song was interpreted as a song that embodies a political message. Yes, Tilahun was reflecting in that song the mood of the people at that time. You may not think that Tilahun sang a song about the World War II experience. What about the song entitled “Korea Mezmeten Betam Ewodewalehu”. This song was about the experience of Ethiopian soldiers deployed to Korea.

You remember when nature turn it’s back on us in 1974? I am sure you remember the hunger named the Wollo Dirk. He was there with us, crying on television, singing about the suffering of his people. Just listen again the song “waye waye silu”(“calling for help”). You will watch him paining the pain of his countrymen.
What about the song entitled “Eyaleh Kalhone Keleleh Yelehim”(If you don’t have, You are done)? Was this song just about the universal truth of the power of money or is there any other meaning when we consider the period he sang. Mind you, the 1975-76 was the period we were warming up to learn eating rice. What about his songs about patriotism, love of country. Considering the above mentioned and other great songs of him don’t we have a ground to say he lived and wrote the past half-century’s Ethiopian history in his songs? That is how I feel and think. Tilahun didn’t get the chance to sing these songs, to be loved and admired by the public simply because he has a sweat voice. His unique ability to interpret songs is the main reason that makes him special. The unsung Heroes of the time, lyrics and melody writers Solomon Tesema, Major Girma Hadgo, Captain Afework Yohannes etc prefer to give their lyrics and melodies to Tilahun because of his unmatched voice command to deliver the message of his songs. It should not be surprising if every lyric and melody writer wishes Tilahun to sing his songs.

Tilahun was not simply a singer. He was a performer-singer. There are singers you prefer to listen only their recordings. The professionals call them studio artists. There are singers that you simply watch them. There are singers that create a miracle on stage. And he is one of the miracle makers. Yes life is unfair. Nature favor few people. He was among the favored one. He has everything that a singer need to have- the voice, the look, the charisma, and stage magnetism. Is there any one like Tilahun that has stage presence in Ethiopian music history? No one! That makes him unique. Tilahun is a singer you need to watch and listen. Why? Because he has extraordinary body language to communicate with audiences. Each and every of tilahun’s gesture interpret his song amazingly. Even the way he looks at camera at some points of a song, do convey his message. Go and watch his Sudanese Song that he sang in Khartoum many years back. You will see him making you feel that he is singing personally to you. This much is amazing the king!

Tilahun is a kind of singer that language barrier would not stop you to listen to him. Come on! Does one need to know Oromifa to listen “Selmaeka Yagene? Is there any kind of wall that stop listener to listen his masterpiece “Akam Neguma Feyuma”? Not at all! We don’t have a tradition of biography writing. When we begin that tradition, he will be a gold mine for future biographers. Biographers would dig about his each and every song; they will study about the songs, the period and the situation in which he played them. He is a gold mine for future biographers.

I hope they will study his each and every song, how he sing them, when, the period and their implication. And through studying his songs, they will keep a record about the history of Ethiopian modern music that he dominantly shaped.

One of Tilahun’s extremely popular songs is “Chuhet Ayaskefam, Sileyu Tewado” Let me borrow the first two lines (stanza) of the lyric and use them to express my sorrow to our lose:

Chuhet Ayaskefam It is OK to cry
Sileyu Tewado when the king dies
Kezih Yebelete there is no sad news
Keyet Yimta Merdo bitter than this.

Let his soul rest in peace

A cyber tiger Diaspora Versus a lionized Meles Zenawi

2009-03-19T00:38:00.000-07:00

By: Dilwenberu Nega, 03/17/09

In the feral world of backbiting malice, veiled threats, liars and blackmailers of the Ethiopian vociferous Diaspora, endless attempts have been made to bury Meles Zenawi under an avalanche of invectives and spurious criticisms. And anyone who had the guts to challenge the wayward behaviour of the vocal Diaspora’s high-command was ‘stripped’ of their Ethiopian nationality and demonised as a traitor and a glutton. But the ferocious attack of the deluding diaspora neither prevented Teflon Meles from ploughing ahead with his developmental plans for Ethiopia, nor did it make his supporters bury their head in shame.

Vocal opponents of Meles Zenawi got up on Monday, March 16th 2009 with a bout of nausea as they heard of the presence in London of Premier Meles Zenawi. The immediate cause of the bout of the nausea was two-fold. First was the timing. Meles jetted in to London close on the heels of a much trumpeted but poorly attended anti- Meles demonstration outside the American Embassy in early March. You might be tempted to raise a legitimate question: why did the anti-Meles demonstrators chose the American Embassy as opposed to 10 Downing Street which is home to incumbent British prime ministers. The truth of the matter has to be told so that Ethiopians in the Homeland and Abroad are fed not an omelette of rumour, but a pancake of truth. Tough-talking officials at the British Foreign and Commonwealth Office – sick and tired of the endless fabrications of the confused and confounded Ethiopian Diaspora in the United Kingdom – had made the position of Her Majesty’s Government crystal clear. “Don’t come to us with your pack of lies about an Ethiopia on fire.” This slap on the face by the Foreign and Commonwealth Office turned the vocal diaspora ballistic so much so that it made attention-seeker Andargatchew Tsiege fulminate: “Downing Street is Woyane Street!”

The second reason for the early morning nausea that struck the deluding opponents of Meles, was the fact that Meles’ visit came at a time when a small band of feral Ethiopian diaspora was frantically trying to father the idea of pulling resources from the ‘gullible’ diaspora for yet another attempt to derail the democratic process in Ethiopia. As usual the blogosphere, too, was inundated with manuals on how best to overthrow a legitimate government. Its focal point provided guidelines on how best to come up with a mosaic of lies which in due course will force the International Criminal Court to issue a warrant for the arrest of Meles Zenawi. The problem here, you see, stems from the fact that the wishful thinking of a self-deluding diaspora not only defies rationale, but also international boundaries. But the irony of it all is the fact that such a nonsensical plan is churned out from the very people who have made blood-stained former cadres of the Derg their political bedfellows.

Much to the delight of the silent majority of admirers of pragmatist Meles, and much to the chagrin of the movers and shakers of the politics of hate, Meles is basking in the limelight as the wise and the great of the world economy queue up to tap his great mind. Sober-minded Ethiopians both in the Homeland and Abroad view Meles’ gradual rise to pole position in the international arena, as proof of his tried and tested leadership. Meles is proving to be an asset not only to Ethiopia, but also to Africa. EPDRF would be naive if it were not to realise that Meles Zenawi’s “use by date” is a galaxy away.

The New Global Growth Path: Implications for Climate Change Analysis and Policy

2008-11-19T01:39:00.000-08:00

Peter Sheehan
Centre for Strategic Economic Studies
Victoria University
In recent years the world has moved to a new path of rapid global growth, largely driven by the developing countries, which is energy intensive and heavily reliant on the use of coal – global coal use will rise by nearly 60% over the decade to 2010. On unchanged policies global CO2 emissions from fuel combustion are likely to nearly double their 2000 level by 2020 and continue to rise beyond 2030. Neither the SRES marker scenarios nor the reference cases assembled in recent studies using integrated assessment models capture this abrupt shift to rapid growth based on fossil fuels and centered in key Asian countries. An international effort to develop new, realistic projections to 2030, with a range of scenarios beyond that time, is urgently required.
Recognition of this path as a realistic possibility will have significant effects on the
impact and damage estimates in an unchanged policy case, on the analysis of achievable stabilisation paths and on estimates of the costs of achieving stabilization at a given GHG concentration level. Finally, such recognition means that, if widely desired stabilisation goals are to be achieved, policies with an immediate effect on emissions, perhaps such as price, tax and regulatory measures to reduce energy use and the rapid diffusion of existing non-fossil fuel technologies, will be required, together with greater knowledge about the effectiveness and the economic costs of such policies.
The new global growth path
For more than two decades the world economy has been changing rapidly, with that
change driven by two different but related factors: successive waves of new computing and communications technologies and an expanding process of liberalisation of national and international markets, in areas such as trade, finance, technology and labour. This process has entered a new stage in recent years,\ especially since the entry of China into the World Trade Organisation in 2001 and the
strong growth being achieved in India. Global economic growth has been higher than expected for some years and energy demand has been very strong, much greater than anticipated by markets, providers and analysts.
summary information on trends in global GDP and energy use over 1972–2006. While there was considerable variation within them, in each of the three decades from 1972–2002 the average annual growth of world GDP (in constant purchasing power parity prices) was 3.5%, with per capita GDP growth at around 2%.
By contrast, over the four years 2002–06 the global growth rate was 4.9%, with per capita GDP growth at 3.7%, a very high rate in historical terms. The growth in primary energy use over 2002–06 (3.3%) was more than twice that over 1992–2002 (1.5%), while the share of coal in primary energy use rose strongly, from 25.5% in 2002 to 28.4% in 2006. Indeed, while over the 1972–2002 period coal use grew less rapidly than all other energy sources, over the last four years this has been reversed, with coal use growing by 6.1% per annum, more than twice the rate of all other energy sources (2.3%). Thus coal consumption has provided nearly half of the increase in total primary energy consumption in the last four years, with the absolute increase in coal consumption over 2002–06 (653 mtoe) greater than the increase over the whole of the two decades 1982–2002 (583 mtoe).
The quite different outcomes shown for 2002–06 relative to the previous three decades might well be dismissed as cyclical fluctuations. But it is now widely accepted that fundamental, long term factors are at work: the sustained emergence of China and India as economic powers, more rapid growth in other developing countries, the revival of Japan from its stagnation over a decade or more, better economic prospects in Russia and other CIS states, and more generally an open world economy with low inflation. Reflecting both current demand and revised expectations for the future, global market prices for oil, coal and resources have risen sharply and large scale investment plans for energy and resource development have been put in place, both in key markets such as China and India and in supplier countries such as Australia, Brazil and Russia. This new global economic path has led to a flurry of activity by governments and businesses around the world, as they seek to reassess their position in a world in which China and India are major economic powers.
As a result, longer-term growth forecasts from both private groups and public agencies are being revised upwards. For example, summarises the aggregate forecasts for GDP (in constant purchasing power parity prices) from the IMF World Economic Outlook published in April 2007, using a ten-year moving average annual growth rate. The IMF’s projected global growth rate over 2002–2012 is 4.9%, the same as the actual growth rate for 2002–06. This is not driven by the advanced countries, whose overall growth is projected to slow gradually, but by accelerating growth in all other countries, expected to reach 7.1% per annum over 2002–2012.
The climate implications arise not only from the likelihood of higher long term rates of world economic growth, but from two key facts about this growth path: that energy use and CO2 emissions continue to increase in the developed countries and that many of the developing countries driving growth, such as China and India, rely heavily on coal for their energy needs. As an example within the developed countries, the 2007 projections from the US Department of Energy’s Energy Information Agency for the
USA, still the largest user of energy in the world, show energy use and CO2 emissions from fuel combustion growing at 1.1% and 1.2% per cent per annum respectively from 2005–2030, with energy use and emissions from coal use both growing at 1.6% per cent per annum (DOE, 2007). In the second half of 2006, 140 new coal-fired power stations were in planning or construction in the US (Romero, 2006). In terms of the reliance on coal in key developing countries, in 2004 coal provided 71% of total primary energy supply (excluding biomass and waste) in China and 55% in India, by comparison with 17% for the rest of the world (IEA, 2006). As noted above, increased use of coal is already evident in the historical data – world coal consumption has risen by 30% between 2000 and 2006, about the same as the total percentage increase over the previous two decades, and growth of nearly 60% over the decade to 2010 seems inevitable.This paper aims to document the reality of the new growth path and to explore its implications for climate analysis and policy, without embarking on the major task of providing a detailed projection and/or scenario consistent withThe impact of China and India on global trends
The shift to rapid growth in energy use in China
There has been widespread discussion in recent years about the rapid rate of economic
growth taking place in China, and about the impact of that development on world markets for coal, oil and natural gas. Energy use has indeed grown very rapidly – over the five years 2001–06 total energy consumption grew by 71.5% (11.4% per annum), with GDP growth of 10.0% per annum. This explosive growth in energy use was in sharp contrast with earlier trends. From the ‘opening to the market’ in 1979 to 2001 energy use grew at a much lower rate than GDP, with average rates of growth of 4.1%
and 9.7% for energy use and GDP respectively, with the energy intensity of China’s GDP falling continuously through to 2001 and the elasticity of energy use with
respect to GDP being only 0.42. This decline in energy intensity was especially marked in the second half of the 1990s, so that the shift to rates of growth in energy use in excess of GDP growth after 2001 had profound and unexpected implications in energy markets, and led to severe shortages in 2003 and subsequent years.
The decline in energy intensity in China over 1979–2001 was highly unusual for a developing country,4 but most existing projections of China’s future energy use assume an early reversion to an energy elasticity of 0.5–0.7%, For example, the most
well known projections internationally are those of the International Energy Agency (IEA), published biennially in its World Energy Outlook. In the 2006 edition, with an
assumed average growth rate of GDP (in constant purchasing power parity prices) of
5.5% per annum over 2004–30, the IEA projected growth of only 3.2% per annum in
it or exploring the elasticity of energy use with respect to GDP of 0.58, and that the rate of growth of China’s energy use over 2004–2030 will be little more than half its rate over 1971– 2002 (5.5%).
Of the existing published projections the most realistic, in terms of the trends that have emerged over 2001–06, is the unchanged policy case contained in China’s National Comprehensive Energy Strategy and Policy (NDRC, 2004; see also Dai and Zhu, 2005). The unchanged policy scenario in this report projects annual average growth in energy use and CO2 emissions over 2000–2020 of 4.7% and 4.6% respectively. These growth rates are reasonably close to the outcomes for 1971–2002 noted above, and well above the IEA 2006 growth rate estimates for 2002–2030.
Nevertheless, shows clearly that energy use in the Chinese economy is expanding much more rapidly than envisaged in scenario A. In terms of the main aggregate indicator, primary energy use, the actual figure for 2006 is about 15% greater than the projected figure for 2010, and electricity generating capacity in 2006 was 11% above the projected level for 2010. The demand for coal has been extremely strong, with the 2006 actual being 18.5% above the projected figure for 2010. The demand for oil was broadly in line with projections in 2006, as higher oil prices impacted on demand and led to fuel substitution, and usage of natural gas is also within the projection range. In terms of total energy use, and in particular coal use, the Chinese economy is on a path well above that in the 2004 official Chinese projections, which in turn are well above the IEA 2006 projections.
one of the main reasons for growth in energy demand ahead of the projection. It shows the actual output data for 2006 for four energy intensive industries for which output projections were provided in the NDRC report (2004). Output is running well ahead of expectations in these industries: for two industries (iron and steel and cement) output in 2006 was ahead of the 2020 projected level; paper production in 2006 was closer to the 2020 than to the 2010 projection, while ethylene output is also somewhat ahead of the projection. Consistent with these data, many observers (e.g., CASS, 2007) believe that a structural shift towards energy intensive industries is the main reason for rapid growth in energy use since 2001.
The Chinese Government has expressed concern about the economic, environmental
and social impact of continuing high rates of growth of energy demand. In the 11th Five Year Plan (2006–10) the Government included as a priority target a reduction of 20% in energy use per unit of real GDP over the five-year period (Wen Jiabao, 2006). The precise implications of this target for the growth in energy use and the energy elasticity of GDP depend on the rate of growth of GDP achieved, but the implied elasticities range from 0.41 with 8% per annum GDP growth to 0.52 with 10% growth. Thus the current target also implies a return to the elasticity levels achieved over the 1979–2001 period. Issues concerning the shift from an energy elasticity of GDP of less than 0.5 over 1979–2001 to a value greater than one over 2001–06, together with the prospects of reverting to earlier levels in the near future, are thus critical to understanding the future path of China’s energy use. The reasons for the low elasticity over 1979–2001 have been analysed in an extensive literature (e.g., Sinton and Levine, 1994; Lin and Polenske, 1995; Garbaccio et al., 1999; Sinton et al., 1998; Zhang, 2003; Andrews- Speed, 2004) but limited scholarly attention has as yet been given to the post-2001 trends. In terms of the declining aggregate energy intensity up to 2001, there is strong evidence that this reflected a widespread fall in sectoral energy intensities and took place in spite of an ongoing shift to a more energy intensive economic structure. The fall in sectoral intensities was in turn due to a combination of energy conservation programs and technological change being driven by a planned economy with energy rationing, with rising relative energy prices also playing a significant role in the 1990s. Sheehan and Sun (2007) conclude that, now that energy supplies are abundant, the enforcement mechanisms of the command economy no longer available and rapid growth in energy intensive industries is continuing, an elasticity of significantly less than one will be difficult to achieve, and will require sustained and integrated policy implementation.
Consistent with this analysis, Sheehan and Sun (2007) use a simple but disaggregated model to project China’s energy use and emissions out to 2030. They conclude that, on the policies in force in 2005, China’s energy use and CO2 emissions from fuel combustion are likely to grow by more than 6% per annum over 2005–30. This would imply emissions from energy use (excluding cement production) of 6.2 GtC in 2030, by comparison with an overall global figure in 2004 of 7.2 GtC. Their simulations indicate that achieving major reductions will be difficult, but that a sustained new policy implementation process, involving use of the full range of instruments, could reduce China’s energy use and CO2 emissions by about 35% relative to this projected level by 2030, implying a growth rate over 2005–30 of 4% per annum.
The sustained rise of India
India’s growth has been accelerating since the late 1970s, and reached 5.5% in the Ninth Plan period, 1997–2002. The preliminary GDP growth rate outcome for the
Tenth Plan period, 2002–07,5 is 7.6% per annum, by comparison with a target of 8.1%, and growth in the last two years of the plan period averaged 9.2%. The Planning Commission (PC) has set a growth rate target of 9% for the Eleventh Plan period, 2007–12, with sectoral growth rates of 4.1% for agriculture, 10.5% for industry and 9.9% for the service sector (PC, 2007).
India’s growth has traditionally been driven by services rather than industry, but a notable feature of recent trends has been an increase in the growth of secondary industry (and especially manufacturing) relative to the overall growth of GDP. The target growth rate for real value added in manufacturing is 12% per annum.
The energy elasticity of GDP (excluding energy from biomass) for India was 1.15 over the period 1971–2005, although it was lower over 1990–2002 than in the earlier period. Energy use in India has been limited to date by a focus on service industries and by supply shortages, and half the country’s population remains without electricity (PC, 2007). But industrial and household demand is increasing and sustained efforts are being made to increase electricity generation, primarily through coal-fired power stations. The Planning Commission projects that the demand for coal will rise by 7.6% per annum between 2005–06 and 2011–12 (PC, 2007). India has also been highly dependent on energy from biomass and waste. But with expansion possibilities limited in these traditional areas, growing demand for energy will need to be increasingly met from commercial sources.
The major forward-looking study of India’s energy requirements is the Report of the Expert Committee on Integrated Energy Policy, prepared for the Planning Commission and published in August 2006 (Parikh, 2006). This report outlines both India’s growing energy needs in the context of rapid growth and the programs that are being put in place to ensure that they are met. On the demand side, and on the basis of a range of assumptions about growth rates and the energy elasticity of GDP, it projects growth in commercial energy demand in India between 5.6% and 7.2% per annum over 2006–07 to 2031–32. On the supply side the authors run eleven alternative scenarios, starting from an existing policy case in which the least cost energy sources are developed (scenario 1) through a cascading series of policy scenarios in which the potential of non-fossil energy sources and of energy savings are maximised. In scenario 11 all such policies are implemented simultaneously. For their preferred case of 8% GDP growth, scenario 1 projects an increase in commercial
energy use of 6.0% per annum over 2006–07 to 2031–32, while for scenario 11 the figure is 5.1% per annum. In scenario 1 CO2 emissions from energy use are expected to rise about 7% per annum to 1.5 GtC by 2031–32, while projected emissions by that date are about one third lower in scenario 11 at 1.0 GtC, a growth rate of about 5.5%.
An indicative quantification of the implications of the new growth path
The purpose of the preceding discussion is to provide evidence, for two major countries, on emerging trends in GDP growth and energy use. The new growth path will, of course, impact on many other countries in different ways. But it is important to note the scale of developments in China and India: if, in the light of the trends reviewed above, CO2 emissions from fuel combustion and cement production are assumed to grow by 6% per annum in both China and India over 2004–30, the additional emissions in 2030, over and above the IEA (2006) projection for that year,
amounts to 52.5% of global energy demand in 2004. That is, these revised assumptions alone produce a further increase of over 50% in global emissions relative to the 2004 level, in addition to the increase of 59% already envisaged in the IEA 2006 projections, by 2030.
Short of an authoritative international projection of the implications of the new growth path being available, the strategy of Sheehan, Jones et al. (2007) is adopted here to provide an indicative quantification for working purposes. They start from the IEA (2006) projections, but adjust them to take account of the trends discussed above
in China and India, and in a number of other rapidly developing countries in East Asia, but otherwise adopt the IEA (2006) assumptions and results. The methodology and detailed assumptions used are described in that paper while the results, for CO2 emissions from fuel combustion and cement, are provided in. Emissions in 2030 are 120% above the 2004 level (and 150% above the 2000 level), and still growing at over 2% per annum at that time. First, in recent years the world has moved to a new path of rapid global growth, largely driven by the developing countries, which now comprise 40% of world GDP. This growth path remains energy intensive and heavily reliant on the use of coal – global coal use will rise by nearly 60% over the decade to 2010. Second, if the key developing countries in Asia continue to drive growth after 2010, albeit at a more subdued pace, then on unchanged policies global CO2 emissions from fuel combustion are likely to double their 2000 level by about 2020 and continue to rise beyond 2030. This must be considered a realistic, though of course not inevitable, unchanged policy outcome. Third, the SRES marker scenarios, finalised in 1998, do not capture this abrupt shift to rapid growth based on fossil fuels and centered in key Asian countries, and no longer provide a
realistic guide for climate change analysis. The reference cases assembled in recent studies using integrated assessment models also fail to recognise this new reality. An international effort to develop new, realistic projections to 2030, with a range of scenarios beyond that time, is urgently required. Fourth, recognition of this new emissions path as a realistic possibility is likely to have a significant effect on the impact and damage estimates from an unchanged policy case, on the analysis of achievable stabilisation paths and on estimates of the costs of achieving stabilization at a given GHG concentration level. Finally, recognition of this new growth path also means that policy must focus on the short-run dynamics of emissions, and on measures with immediate impact. For example, if stabilisation is to be achieved at 550 ppm CO2e a significant reduction in global emissions relative to the reference path is needed in the next ten years. This in turn will require an emphasis on policies with an
immediate effect on emissions, perhaps such as price, tax and regulatory measures to reduce energy use and the rapid diffusion of existing non-fossil fuel technologies, together with greater knowledge about the effectiveness and the economic costs of such policies.

Rising food prices: policy options and World Bank

2008-11-19T01:37:00.000-08:00

Background note for the Development Committee
Rising food prices: trends and determinants
The rising trend in international food prices continued, and even accelerated, in 2008.U.S. wheat export prices rose from $375/ton in January to $440/ton in March, and Thai rice export prices increased from $365/ton to $562/ton. This came on top of a 181 percent increase in global wheat prices over the 36 months leading up to February 2008, and a 83 percent increase in overall global food prices over the same period.

Increased bio-fuel production has contributed to the rise in food prices. Concerns over oil prices, energy security and climate change have prompted governments to take a more proactive stance towards encouraging production and use of bio-fuels. This has led to increased demand for bio-fuel raw materials, such as wheat, soy, maize and palm oil, and increased competition for cropland. Almost all of the increase in global maize production from 2004 to 2007 (the period
when grain prices rose sharply) went for bio-fuels production in the U.S., while existing stocks were depleted by an increase in global consumption for other uses. Other developments,
such as droughts in Australia and poor crops in the E.U. and Ukraine in 2006 and 2007, were largely offset by good crops and increased exports in other countries and would not, on their own, have had a significant impact on prices. Only a relatively small share of the increase in foodA production price (around 15%) is due directly to higher energy and fertilizer costs.

The observed increase in food prices is not a temporary phenomenon, but likely to persist in the medium term. Food crop prices are expected to remain high in 2008 and 2009 and then begin to decline as supply and demand respond to high prices; however, they are likely to remain well above the 2004 levels through 2015 for most food crops. Forecasts of other major organizations (FAO, OECD, and USDA) that regularly monitor and project commodity prices are broadly consistent with these projections. Predictions of high food price in the medium run are further strengthened when we factor in the impact of policies aimed at achieving energy security and reduced carbon dioxide emissions, which may present strong trade-offs with food security objectives.

Impact on countries and households
Rising global food prices are contributing to high food inflation in many countries. The pass-through of rising global prices does not translate into an immediate and proportionate rise in domestic price levels, due to various factors such as a weakening dollar, domestic infrastructure and price stabilization policies. While the extent of global price transmission varies, over the past year there have been significant surges in domestic food price inflation in countries such as Sri Lanka (34%), Costa Rica (21%), and Egypt (13.5%). In many countries
and regions, food price inflation is higher than aggregate inflation and contributing to underlying inflationary pressures. For example, in Europe and Central Asia overall inflation in 2007 averaged 10%, food inflation 15% and bread and cereals inflation 23%.4 This compares to 6% overall inflation and 6.4% food inflation in 2006.
The terms-of-trade effects of these higher food prices have generally been mitigated by rising non-food commodity prices, although these averages mask significant balance of payments impacts for certain countries. When all primary commodity price changes are considered, the terms-of-trade impacts become large and positive for resource rich countries as exports of oil and other commodities more than compensate for higher food prices. Countries with the largest negative terms-of-trade impact include Lesotho, Eritrea and Gambia.

The distributional impacts of rising food prices can be serious even in countries where the balance of payments has not been adversely affected. While some households benefit from higher prices, others are hurt by them, depending on whether they are net producers or consumers of the food staple and the extent to which wages adjust to higher food price inflation. In general poor people, especially in urban areas, suffer due to rising food prices. Using a sample of household data for eight low income countries, a recent paper5 analyzes the impacts of higher prices of key staple foods on poverty, taking into account direct impacts from changes in commodity prices, and impacts through changes in wage rates for unskilled labor. The results show that, in six of the eight countries considered, price increases for staple foods were associated with a significant rise in poverty.

Averaging across these eight countries, the increase in food prices between 2005 and 2007 is estimated to have increased poverty by 3 percentage points. A recent assessment in Indonesia shows that over three-fourths of the poor are net rice buyers, and an increase in the relative rice price by 10 percent will result in an additional two million poor people (or 1% of the population). Analysis using an alternative price index weighted according to the consumption patterns of the poor in Latin America suggests that in most countries of the region, the effective inflation rate faced by the poor is higher than the official rate by 3 percentage points.

For many countries and regions where progress in reducing poverty has been slow, the negative poverty impact of rising food prices risks undermining the poverty gains of the last 5 to 10 years, at least in the short term. For example, in the case of Yemen, estimates show that the doubling of wheat prices over the last year could reverse all gains in poverty reduction achieved between 1998 and 2005. Over the long term, the impact on poverty of higher food and other commodity prices is less clear and depends partly on how overall economic growth responds to increased wealth accumulation and investment by net food-selling rural
households.

What can governments do?
Policy interventions can be divided into three broad classes: (i) interventions to ensure household food security by strengthening targeted safety nets; (ii) interventions to lower domestic food prices through short-run trade policy measures or administrative action, and (iii) interventions to enhance longer-term food supply. Within all three categories of policies there are ‘first best’ or preferred options that are more effective and equitable, and introduce fewer distortions.

Ensuring household food security via targeted safety nets First best options to address food insecurity include targeted cash transfers to vulnerable groups. These support the purchasing power of the poor without distorting domestic incentives to produce more food, and without reducing the incomes of poor food sellers. Examples include cash or near-cash transfers7 that are conditional upon meeting a requirement (such as low income, location or occupation) or engaging in a mandated behavior (such as sending children to school). The scale, targeting efficiency and value of such transfer programs tend to be directly related to overall levels of development, given the administrative complexities and fiscal costs
entailed. They are not always a feasible option in low-income countries with weak administrative capacities.

Various kinds of cash transfer programs are currently used in Brazil, China, Ethiopia, Egypt, Indonesia, Mexico, Mozambique, South Africa, Sri Lanka, and Tunisia. Several of these countries are adjusting current programs in response to the rise in food prices. For example, in Ethiopia, where food price inflation in February 2008 was 23 percent (year on year), the Government has raised the cash wage rate of the largest cash-for-work program by 33%.

A number of countries, including Bangladesh, Madagascar, Cambodia, and India, are using self-targeted8 foodfor- work programs, while others, including Afghanistan and Angola, use emergency food aid distribution to ensure food security for vulnerable groups. The food-for-work program in Bangladesh has been expanded recently due to both natural disasters and the rise in food prices. While self-targeting reduces the costs involved in administrative targeting, the physical transfer of food is itself costly and can lead to leakages. Food aid can also have growing disincentive effects on local production if it becomes entrenched beyond the initial emergency or is not tied to a work requirement. Still other countries, including Burkina Faso, Brazil, China, Kenya, Honduras, Mexico and Mozambique, make effective use of school feeding programs to improve the food intake of school-age children and their families. South Africa is expanding allocations to its school nutrition program to keep pace with the rate of food inflation.

On the downside, school-based programs do not typically address child malnutrition at its most critical point – when children are in their infancy.
Rising food prices also risk derailing recent gains in reducing malnutrition. Between 1990 and 2005, the share of children under five with moderate and severe stunting fell from 33.5 percent worldwide to 24.1%.9 While food prices are not the main driver of malnutrition, they do affect nutritional outcomes through their impact on real incomes and household purchasing behavior. In compensating for rising food prices, vulnerable households may substitute towards less food, or cheaper, but less nutritious, substitutes for current diets.

Ensuring household food security by lowering domestic food prices First best options to lower domestic prices include reducing tariffs and other taxes on key staples. Many countries impose tariffs on food imports, both to encourage domestic production and boost domestic revenue. In times of sharply increasing prices, reductions in tariffs and taxes can provide some relief to consumers, albeit at a fiscal cost. The revenue loss from reducing tariffs can be significant and the fiscal implications of combining this with additional social protection expenditures may well require cutbacks in lower priority areas. Some
twenty-four of fifty-eight countries sampled have recently reduced import duties and VAT in the wake of rising food inflation. Others, such as the Philippines, continue to maintain high tariffs to protect domestic producers in– yet these high tariffs adversely affect the large majority of the poor, who are net consumers. Several countries (mainly in the Middle East-North Africa region) have a long history of using bread or grain subsidies specifically targeted to the poor to cope with household food insecurity. Others have introduced consumer subsidies for staples following the recent rise in food prices. For example, the Government of Yemen is supplying wheat in select markets at subsidized rates following a sharp rise in food prices. In early 2008 the Government of Pakistan announced that it was reviving a ration card system to distribute subsidized wheat. The risk with such measures is that they can become entrenched, incurring high fiscal costs. Moreover, if consumer subsidies are met by measures to keep producer prices low, this can create disincentives for domestic food producers, and end up being counterproductive. The one exception is when price controls are explicitly introduced as a temporary measure and are widely felt to be justifiable in terms of a higher social goal. In such cases, the risks of entrenchment will be minimized, as observed in recent interventions to limit price increases for staples during Ramadan in Morocco. For countries that are grain exporters, there may be political pressures to ban or tax grain exports in high price years. Unfortunately, several countries have now implemented these types of measures. These policies tend to have a limited impact on domestic price levels and a significant negative effect on earnings for domestic producers and exporters. They can also lead to sharp price fluctuations in countries that depend on imports, proving harmful to the global system. In the 1970s and 1980s, many countries implemented a grain buffer stock policy to physically carry over grain surpluses (domestic or imported) from low price years to high price years. In practice, this policy tended to entail high fiscal costs with difficult management and governance issues, while the benefits it yielded for household food security were unclear. Furthermore, world markets could be relied on to provide a steady supply of relatively cheap grain imports when needed. More recently, however, the stock-holding policies of several large producers—such as the U.S., E.U. and China—have changed, contributing to the present situation of very low global grain stocks and increased global price volatility. As a consequence, a number of developing countries, such as Indonesia, are considering reverting to this form of price management, particularly after experiencing the impact of export bans in key export countries.

Measures to stimulate a medium-term food grain supply response While higher grain prices are clearly a burden to poor net purchasers of food, they also present an opportunity to stimulate foodgrain production and enhance the contribution of agriculture to mediumrun growth. For example, higher prices weaken the rationale for costly floor prices or import tariffs for grain, and may facilitate the implementation of politically difficult trade reforms. Higher grain prices can also help to reverse a generally declining trend in government, private sector and donor investment in the agricultural sector. Agricultural producers such as Brazil, Malaysia and Thailand have made significant progress in agricultural commercialization in recent years, and have increasingly undertaken investments in research and extension necessary to promote increased agricultural productivity and reduced agricultural risk.

However, some of the short-run policy options discussed above may limit the scope for longer-term solutions. For example, policy responses that seek to control markets through mandated grain prices, export restrictions, forcible procurement, or direct government involvement in marketing activities are likely to lower the food supply response over the medium term. In contrast, alternative measures such as the piloting of market based risk management tools in Malawi, and the improvement of publicly accessible market information systems in India and Mali, are all likely to mobilize significant new resources in the private sector to cut marketing costs and improve efficiency of grain markets over the medium term.

For many low-income countries, transport and logistics costs are a key component of food prices and are generally far higher than OECD benchmarks of around 9 percent. While countries can do little to reduce ocean shipping costs (which for high volume, relatively low value goods such as grains and edible oils represent a significant part of the final price), they can act to lower the overall cost of domestic distribution. The importance of strengthening inland transport links in mitigating price spikes was recently underscored in Congo Republic. Improvements in transport capacity stemmed the rise in food price inflation that was experienced in 2006, and further investments in transport links with Brazzaville are expected to be an important part of controlling price spikes. Investments in basic transport infrastructure have a proven record in reducing prices, particularly in remote locations in countries such as Nepal. Moreover, improvements in customs facilitation, logistics performance, and efficient grain storage can also have significant benefits for consumers, while generating a favorable supply response

Measures to handle the ‘spillover’ effects of the above-mentioned policy responses
Many of the policy responses discussed in the previous two sections have significant fiscal implications.In the case of Ethiopia, for example, the total additional costs of combined measures to raise the wage on the cash-for-work program, lift the VAT on food grains, and distribute wheat to the urban poor at a subsidized price, are likely to exceed 1% of GDP. The macroeconomic consequences of higher spending depend largely on how they will be financed. Where additional budgetary costs are financed via higher domestic borrowing, this may lead to higher overall inflation. An alternative is to transfer costs to non-poor taxpayers, which may or may not
be feasible depending on country-specific revenue-raising capacities and political economy considerations. Diverting resources from other social sector spending or from other core public investments to finance shortterm responses may have medium and long-run opportunity costs. On the other hand, addressing food security priorities may provide an opportunity to reduce lower priority expenditures and reallocate these resources. Given the potentially important economic and political costs of not addressing food security, a temporary increase in budget deficits may be warranted.

Not all countries have the same capacity to accommodate and execute additional safety net and food policy spending. Using comparable data from the World Bank’s Country Policy and Institutional Assessment indicators, developing countries can be classified into four categories, depending on the extent of fiscal and balance of payments imbalances: (1) those in which initially weak public finances and fiscal management capacity has been further undermined by adverse terms-of-trade shocks (e.g. Burundi, Eritrea, Grenada, Haiti, Jamaica, and Nepal); (2) those in which somewhat stronger initial positions have been weakened by the terms-of-trade shocks (e.g. Burkina Faso, Ethiopia, and Honduras) and/or compounded by political crises (e.g. Kenya and Pakistan); (3) those in which there is weak fiscal capacity to effectively execute the additional food policy spending even in the face of favorable terms-of-trade movements (e.g. Mongolia and Zambia); and (4) those with stronger initial fiscal and balance of payment indicators, in which there is greater scope for mitigating the adverse impact of rising food prices (e.g. Indonesia, Mexico, and Tunisia).
The design of public policies to address rising food prices is conditioned by political economy factors.

The strength of different interest groups is a critical factor in influencing policy choices and determining what solutions are feasible. Even in cases where countries are net suppliers of food to world markets, governments may face strong incentives to put in place protective measures. Sound policy choices will seek to implement those solutions which are economically most efficient, yet reflective of political economy considerations and in line with the country’s fiscal space and institutional capacity. In some cases, first or even second best policies may not be feasible or may involve difficult political choices. In general, government policy choices are likely to be better accepted and understood if accompanied by a transparent and effective communications strategy on the causes of high food prices and accompanying policy measures.
Just-in-time policy advice to address immediate concerns. There is strong demand for Bank advice on the design and expansion of safety net programs and food market interventions to help protect vulnerable groups. In Indonesia, the World Bank’s work has played a significant role in informing discussion of the impact of rice prices on poverty and on the usefulness of various policy instruments, for example cash transfers.10 In Egypt, the Bank helped bring together Mexican officials with experience of conditional cash transfer programs to share with Government officials. In Ethiopia, wage rate analysis carried out by the Bank was the basis of adjusting the cash transfer element of the country’s largest safety net program. There has also been demand for advice on market interventions to smooth supply and lower food prices. An intensified dialogue on food stocks (which addresses optimal stock amounts, fiscal trade-offs, and implementation challenges) is being held in several countries, including Indonesia and Burkina Faso. In the Philippines, the Bank is advising the Government on the best strategy for reducing rice import tariffs. A high level forum is being organized in Morocco to discuss various reform options of the fuel and food subsidy programs.

Several countries have sought policy advice from the Bank to cope with the macroeconomic implications of rising food prices. Several policy notes have been prepared for partner countries on the causes of high food price inflation (e.g. Bangladesh and China) and options to manage rising inflation rates (e.g. Morocco). At the request of a number of Latin American Central Banks, the World Bank is organizing a workshop in Peru in May 2008 to discuss the use of inflation targeting. Several governments are asking for information on global trends and prospects to better understand the structural nature of the rise in food prices, as well as for information on responses adopted by other countries. Bank staff will be meeting with the Ministers of Finance of Central American countries to share Bank knowledge on food price trends and policies.

Meeting short-run financing needs. The immediate fiscal impacts of rising food prices vary across countries, as many food importers have been compensated by rising commodity export prices. It is still too early to assess the extent to which countries will turn to the Bank to contribute to emerging financing gaps. However, a few countries are actively considering increasing the size of forthcoming Development Policy Loans (e.g. Burkina Faso’s PRSC 7).

In the short run, the World Bank could scale up financing in existing programs and ongoing investment projects for safety net and agricultural programs. In Latin America, where many countries have comprehensive safety nets providing support to vulnerable groups, the Bank stands ready to scale up financial support to many of these programs. Additional Bank support can help expand and improve existing programs by providing: technical assistance to improve targeting and coverage, programmatic financing for strengthening social protection systems, and contingent financing for budgetary flexibility in the face of large-scale shocks. In Jamaica, the Bank is currently preparing a social protection project, which could be expanded to increase its coverage. In other cases, existing lending programs are being modified to improve the efficiency of safety net programs. For instance, in the Middle East-North Africa region, a number of DPLs are supporting the reform of food subsidies.

While most of its agricultural projects are geared towards medium-term policy and institutional reforms to increase productivity, the Bank also designs interventions to boost short-term food staple production, storage and distribution. For instance, an additional $15 million supplemental credit for an existing agricultural project is being prepared in Burundi in order to finance the distribution of crop inputs for the forthcoming agricultural season.

Expanding and improving access to safety nets and risk management instruments. Improving the quality of and access to safety nets will be a priority for protecting vulnerable households in the face of continued uncertainties in global food markets – at least for the foreseeable future. The Bank can help countries build stronger and more flexible safety nets to cope with shocks, with clear targeting and programmatic frameworks that can be quickly scaled up to protect vulnerable households. In addition, expanding programs to ensure basic nutrition, particularly for infants, and improved access to health and education systems will also help minimize the likelihood that income shocks reduce demand and damage human capital accumulation. Finally, the Bank is
also investing to help develop modern risk management systems such as crops and disaster insurance.

Support for an international agenda
The impacts of the recent surge in food prices are reverberating across key dimensions of the development agenda, including poverty alleviation, macroeconomic stability, investment incentives and energy security/climate change policies. Because it is capable of weaving together the economic, poverty, social, agricultural and environmental perspectives, the Bank is well-placed to catalyze global action and influence the international agenda. Three such issues where the Bank can seek to improve global outcomes are discussed below, many of which are of direct consequence for middle-income countries.
First, the Bank is working closely with countries and other donors to minimize the adoption of policies with negative spillover effects for others. High levels of trade tariffs and subsidies create major negative externalities. Agricultural tariffs and subsidies in developed countries cost developing countries annually the equivalent of about five times the current levels of overseas development assistance to agriculture. Export bans also bring about negative externalities, particularly for countries that are heavily dependent upon imports. They can create price spikes in importing countries and political pressure for domestic food self-sufficiency.
Second, the Bank’s climate change agenda seeks to inform the global debate on bio-fuels through analysis, monitoring and balancing of competing needs for energy and food security. Concerns over increasing energy use, climate change, and carbon dioxide emissions from fossil fuels make switching to lowcarbon fuels a high policy priority at both the global and country levels. Bio-fuels are a potential low-carbon energy source, although whether bio-fuels offer carbon savings depends on how they are produced. Secondgeneration bio-fuels produced from waste products, in particular, can avoid land use change and some of the emissions associated with current bio-fuel programs, and may hence offer significant environmental and social benefits. These benefits, however, have to be weighed against the potential costs of rising food prices. According to a recent IFPRI study, most scenarios of increased use of bio-fuels imply substantial trade-offs with food prices. These trade-offs are dampened, although not eliminated, when technological advances in bio-fuel and crop production are considered. Trade-offs between energy security, climate change and food security objectives need to be carefully monitored and integrated into both food and bio-fuel policy actions.

Third, the increase in food prices creates an opportunity for the global community to refocus on investments in agriculture and social protection. The structural shift in food prices creates an opportunity for the Bank and other donors to work with partner countries to build the political coalitions and mobilize the necessary financial support to reverse a perennial problem of under-investment in agriculture and to build better safety nets to help the poor cope with their endemic high levels of risk.

Fed Up with American Legislation Rhetoric?

2008-09-17T03:34:00.000-07:00

As I write this short commentary, I have started reading Larry Diamond’s book, entitled the Spirit of Democracy: The Struggle to Build Free Societies Throughout the World (2008). Diamond is a professor at Stanford University and probably some of you also know him as an editor of many issues in the Journal of Democracy. He starts his book with the following quotation from Mahatma Ghandi: “the spirit of democracy cannot be imposed from outside. It has to come from within”. The disregard by American legislators of this fundamental principle of political development is not the only reason that Ethiopians are dismayed of the proposed Senate bill on their country. There is also another more important issues: why Ethiopia? For example, Ethiopia is more stable than Pakistan and India, more democratic than China, more open than Eritrea or Saudi Arabia, more progressive than Kenya, has good record of economic growth or is among the promising developing countries to achieve the UN development goals (MDGs), and more importantly, Ethiopia is a US ally in the fight against global terrorism including support for the AFRICOM (an American military command centre in Africa). All this just makes the proposed Senate bill ridiculous and even a laughing matter.

Although the core values of democracy have universal appeals, Americans themselves continue to be part of the problem in the democratization processes by frustrating national leaders with their ill-conceived hegemonic agenda or supporting political opposition groups that have no clear developmental agenda. One explanation for this is that many American politicians have little or no international experience and knowledge. This then makes them very vulnerable to the influence of powerful interest groups. We all know how Iraqi and Afghan Diaspora lobby groups and emotional policy experts contributed to George Bush’s disastrous foreign policies. Perhaps it is time that Americans learn from the experience of middle power countries like Canada whose foreign policies promote peaceful dialogue and conflict resolution and strategic interventions guided by the principles of multilateralism, such as a UN-mandated intervention.

In all frankness, the new or revised draft Senate bill on Ethiopia is a typical Western policy or legislation document on Africa. When you propose intervention in an African country, there are costs and you must come up with a rational to justify that cost, such as political problems, human rights violations and stalled economic development. To be transparent, the document recognizes Ethiopia’s progress in development, regional leadership and security vulnerability and other factors. This is an important strategy to appease many American legislators who have been closely following the situation in the Horn of Africa. On the other hand, the bill must stick to its initial purpose, which is accommodating the needs of lobby groups and, to justify its “relevance”, it must cite, among other things, reports of human rights violations (don’t forget that there are more negative human rights reports on America, especially in relation to its war on terror, than on Ethiopia) and Ethiopia’s democratization challenges which are not uncommon in many developing countries. The bill then proposes legislation that calls on America to provide support for Ethiopia while dictating what should be done. What right do American politicians have to dictate what should be done in Ethiopian? The Ethiopian government will denounce this legislation (if passed), which means that it will achieve nothing. Those American politicians should realize that American diplomats and business people arrive in Addis Ababa, the capital of Africa, almost daily and that their actions have serious consequences for American interests.

What should we say about the groups that lobby American legislators? My own version is that the Ethiopia Diaspora lobby groups are supported by complex networks of interest groups which could be broadly classed as follows: 1) intellectual thugs, identifying themselves as “professors”, “PhDs”, “Drs” etc (to increase their low self-confidence), who write focusing on the negative aspect of Ethiopian society while undermining development efforts including the contribution of donor countries. This justifies the campaigns of lobby groups; 2) former Derge officials whose policies and practices caused the displacement, arrest, torture and murder of hundreds of thousands of Ethiopians. They used to swear on the destruction of American “imperialism”; 3) groups that still remain tied to their old (1970s) political habits, which is to remove a ruling party from power by any means necessary, instead of developing governance capacities and seizing state power by winning competitive elections; 4) a segment of the rich Diaspora middle class that has no sympathy for the plight of our poor relatives. This group focuses on the issues of state and political power; 5) groups within the Eritrean Diaspora which have also been good at encouraging and supporting separatist groups; and 6) groups that identify themselves as Ethiopians (mainly Eritreans) in order to advance their anti-Ethiopia agenda. Tecola Hagos’ anger over this draft bill is clearly understandable, but he might have gone too far to implicate foreign countries like Egypt, Sudan and Pakistan. In my view, the Egyptians, Sudanese and others have concluded that times have changed. In their views, Ethiopia is now ruled by a “conservative” group of people who also have successfully mobilized international support around their development agenda. They know that any conspiracy against Ethiopia will backfire.

The Ethiopian government should set up an independent commission to study Diaspora-Ethiopia relations and utilize the findings to initiate a multi-party process for drafting legislation on the Ethiopian Diaspora. Through legislation, the government should recognize genuine Diaspora groups that play a positive role in Ethiopian development and hold irresponsible groups accountable. Such legislation also encourages domestic civic and political groups to think strategically when they form relations with Diaspora groups.

Finally, maybe, after all, all this American legislation rhetoric can be a good thing for Ethiopia. Because, it motivates Ethiopians to get out of foreign aid dependency. With the economy growing and basic infrastructure laid down, the government needs to work hard to increase its taxation capacity and achieve self-sufficiency. Either way, Ethiopian government officials should remain dignified and not even worry about all this nonsense or so the called “Support for Democracy and Human Rights in Ethiopia Act of 2008”.

Getachew Mequanent

Ottawa, Canada

September 15, 2008

2008-08-05T01:15:00.000-07:00

What is the stand of Ethiopia on the Algiers Agreement?

Eritrea forcefully evicted UNMEE and occupied the TSZ and UNSC effectively legalized and legitimized the actions of the mighty rouge regime of Eritrea by terminating UNMEE * and relinquishing TSZ. With this action UNSC become partner in crime against the people of Ethiopia. Eritrea and UNSC killed and buried the Algiers agreement and still they think and believe it is alive. They talk about compliance and Ethiopia to respect the ruling of the border commissions and implement virtual demarcations. The issues are not really what Eritrea and UNSC think and believe. What Ethiopia thinks and believes is the most important factor whether the Algiers agreement dies or survives. Because, Eritrea and UNSC expect and continue to demand Ethiopia's compliance where as they stripped and breached the original agreement.

Way back Eritrea killed the Algiers agreement and today UNSC nailed on the coffin surrendering to the wishes of Eritrea. The termination of UNMEE by UNSC fulfilled the desire of Eritrea. This decision is a huge victory for the dictatorial regime of Eritrea and serious setback for the entire regions of the horn. The UNSC complied with the directive of the Eritrean regime and carried out the orders effectively paving the way for the total abrogation of the Algiers treaty. The unilateral expulsion of UNMEE by the Eritrean regime and the eventual termination by the UNSC leaves Ethiopia free of any kind of obligations from defunct treaty.

If Eritrea can pick and choose any part of the agreement and discard other part it dislike freely without any consequences, Ethiopia can also declare the agreement as null and void. Eritrea unilaterally recompiled and rewritten the agreement and the UNSC tailed the dictator by approving the amendments. Eritrea violated and abrogated every part of the agreement long before this feeble decision of UNSC which legitimize the actions of the Eritrean regime. From the beginning the integrity of the Algiers agreement constantly undermined by the Eritrean regime and the UNSC not only unwilling to correct the situations but shielded the regime from any kind of responsibilities. Eritrea with the collaborations of UNSC nullified the agreement in totality and Ethiopia has no obligations whatsoever to implement any part of the agreement.

The track record of the UNSC in relations to Ethiopia - Eritrea peace process is one-sided, ineffective, powerless and mostly useless. UNSC tolerated and accepted all kind of violations and breaches from the Eritrean regime. It shows no inclinations of any kind to correct the problems and to protect the integrity of the Algiers treaty. Now the UNSC officially voted to terminate UNMEE in accordance with the directive of the Eritrean regime and as such UNSC and the Eritrean regime both are in breach of the Algiers agreement. Termination of UNMEE and Temporary security zone directly negate the agreement. All along, the position of Ethiopia is to honor and implement the treaty in totality without reservations. The Ethiopian government repeatedly called the Eritrean government to respect the treaty and embark on peaceful resolutions of outstanding issues. The Ethiopian government also called UNSC and international entities in many occasions to intervene and ensure the integrity of the Algiers treaty without any success. Unfortunately and sadly, Eritrea intensified its war rhetoric by destabilizing Ethiopia and the whole regions and UNSC and the international communities completely abandoned their responsibilities and in some cases sides with the dictator.

Ethiopia's position of dialogue and peace with the Eritrean regime is unattainable, impractical and as proven again and again is illogical. No one can make peace with the Eritrean regime and it is futile exercise to hope against all hopes. Eritrean regime never believes in peace and never accepted the Algiers agreement as the base of all inclusive peace pacts with Ethiopia. The agreement provided the regime amble time to recover from the military defeat and also counted on fortunes to find face saving opportunities. In which case the agreement shined on the Eritrean regime and won windfalls more than it bargains. The demarcation commission awarded every thing to Eritrea and the regime sees no interest to dialogue and settle peacefully with Ethiopia. Mission accomplished and the international community on it side the regime intensified its aggressions toward Ethiopia up to this time without any cost.

The Eritrean regime can never be partner of peace and Ethiopia must and need to pull the rug under the feet of the regime. Ethiopia unequivocally and clearly must state that Eritrea and UNSC invalidated the Algiers agreement and has no obligation to implement any part of the treaty. Ethiopia simply needs to state the facts on the ground. No obligations of any kind to shoulder the responsibilities while Eritrea with the collaborations of UNSC violated and breached the original agreement. This decision frees Ethiopia from the Algiers treaty and obligations. If Eritrea freely terminate and discard part of the agreement why Ethiopia honor any part at all?

* http://www.un.org/News/Press/docs/2008/sc9410.doc.htm

Thanks

Abdel

Economic Growth for Inflation: The Ethiopian Dilemma

2008-06-19T01:45:00.000-07:00

Asayehgn Desta, (Ph.D)

Sarlo Distinguished Professor of Business Economics

Dominican University of California

Economic Growth for Inflation: The Ethiopian Dilemma
By and large, Ethiopia has recorded seventeen years of economic stagnation under the leadership of The Derg, a military government. For example, in 1990/91, the growth rate of the Ethiopian Gross Domestic Product (GDP) was -3.2 percent, cyclical unemployment was about 12 percent, the rate of inflation was about 21 percent, and the country’s budget was at a deficit of 29 percent of GDP. For the last five years, contemporary Ethiopia has gathered momentum by recording a steady economic growth. Along with this growth, however, the country has seen an accelerated, double-digit increase in the price of goods and services. Thus, inflation has remained a scourge of the Ethiopian economy (e.g., Tadesse, 2008; Demissie, 2008; Goodo, 2008; Kassahun, 2002).

Stated in simple words, Ethiopia at this juncture is faced with an overheating economy. With the global soaring price of oil, wheat, corn, and minerals, this condition cannot be regarded as unique to the Ethiopian situation. What makes this a special case is that Ethiopia is a low-income country. The increase in National Consumer Price Index (the main gauge of inflation) has become very detrimental to the low-income groups and retirees who live off a fixed income. The risk of inflationary pressure is reducing the purchasing power of the Ethiopian birr. Since the current inflation rate in Ethiopia is approximately 20 percent, what used to cost only one birr a year ago now costs about one birr and 20 cents.

Given that a large portion of county’s population lives in absolute poverty (i.e., less than one dollar per day), it is time that the regime in power identifies the salient factors that might be contributing to inflation in Ethiopia. Also, it is absolutely vital that economic policymakers design strategies that could curtail the on-going erosion of purchasing power—to curb inflation before it deepens the economic crisis and contributes to political instability (Desta, 1993).

The focus of this study is to examine both the main causes and the consequences of existing inflationary pressure in Ethiopia. The first section discusses the theoretical frameworks that are believed to be the causes of inflation in developing countries. The second part provides some suggestions on how policymakers may control the current inflationary pressure in Ethiopia and prevent the resurgence of inflation at a minimum cost in terms of output loss.

Inflation as an Economic Growth Phenomenon
From theoretical and empirical perspective, determining the direction of causality between economic growth and inflation in the developing countries is very controversial (e.g., Hossain & Chowdhurry, 1996). In 1950s, the Structuralist Economist view of inflation, as pioneered in Latin America, persuasively argued that moderate inflation and economic growth are positively related. This was in contradiction to the policy advice of the international lending institutions (Meier, 1995; Mallik & Chowdhurry, 2001). Stated in simple terms, inflation stimulates the economy since nominal wages may lag behind prices, allowing for slower adjustment to wage expectation.

Similarly, the Keynesian economic perspective assumed that moderate inflation might accelerate economic growth by raising the rate of profit, thus increasing private investment (Jung & Marshall, 1986). According to Meier, inflation accelerates economic growth in two ways: “by redistributing income from workers and peasants, who are assumed to have a low marginal propensity to save, to capitalist entrepreneurs, who have assumed to have a high marginal propensity to save and invest; and by raising the nominal rate of return on investment relative to the rate on interest, thus promoting investment” (1995). Capitalizing on the Keynesian theoretical framework, the ruling party in Ethiopia seems to attribute the surge in inflation to macroeconomic growth. As stated by Goodo, “The Ethiopian government admits that inflationary pressure has become very severe. However, it also claims that the economy has been growing at 10% for five consecutive years and it is healthy at present.” (2008; Hassan, 2008).

Using the full-employment model, it is possible to assume that if a nation achieves full employment, economic growth is likely to precipitate an inflationary situation. Since the 10 percent increase in nominal GDP cannot keep pace with a 20 percent inflation rate, the acceleration of economic growth is overstated. In fact, it is possible to assert that double digit inflation in Ethiopia is nothing but a clear sign of an unhealthy economy (Goodo, 2008). As persuasively argued by Barro, the inflationary situation in a country could have a negative-structural-break effect on economic growth, if the sustained increase in prices is more than 15 percent (1996).

The inflationary economic growth process generates distortions in the allocation of resources under the free market system. It may not bear fruit if the Ethiopian citizens do not “have confidence in the stability of the value of money, and . . . if inflationary financing is not accompanied by governmental policies of holding down the wage and interest costs of business enterprises” (Meier, 1995, pp. 180). It needs to be appreciated that following a rise in the Consumer Price Index, the Ethiopian government not only scrapped taxes on flour and grains but also started selling edible food items at subsidized prices in order to repress inflation. The government claims “greedy” businesses and speculators are the cause of the inflation. They subsidize food to placate the vulnerable urban poor and the salaried government employees. The efforts of the Ethiopian government to curtail inflation are in the right direction. However, the governmental subsidization programs may be effective only for a short period of time. They are likely to result in shortages; inefficient production and distribution; and black markets. To suggest possible solutions for curtailing inflation in the long run, the articulation and disarticulation between aggregate demand and aggregate supply will be investigated. Additionally, the monetary policy Ethiopia will be assessed in relation to the chronic inflation that has manifested in the country.

The demand-pull and cost-push factors for inflation
Keynesian economists often classify inflation according to the source of the inflationary pressures. The most straightforward method defines inflation in terms of sustained pressure from the demand side of the market or the supply side of the market. By and large, a rampant inflationary situation in any country occurs because of an imbalance between demand-pull and cost-push factors. The demand-pull inflation scenario occurs when a sustained increase in prices is preceded by a permanent acceleration of the nominal gross domestic prices growth (e.g., Gordon, 2009). Stated differently, inflation occurs when increases in total spending are not offset by increases in the supply of goods and services. When many consumers are trying to buy the same good, the price of that good inevitably increases, as there is a limited supply. Also, demand-pull inflation could be a result of an increase in consumer and business confidence, an increase in the money supply, and/or government budget deficits.

On the other hand, cost-push inflation is an increase in production costs that force firms to raise prices to avoid losses. In broad aggregate terms, these could be as a result of energy shocks, weather shocks, increase in the prices of agricultural inputs, a decline in land holding sizes, or import price hikes—all of which might result in a currency devaluation.

With limited land holding, massive land degradation, soil nutrient depletion, and inefficient production techniques, it is possible to argue that, despite economic growth, rapid population growth can contribute to low agricultural productivity, based on the law of diminishing returns. For example, the food estimate for the 2004/05 periods in Ethiopia indicates that while the population increased at about three percent, the food production grew at 3.7 percent (ESSGA, 2006). When compared with the eruption of population in Ethiopia, the food growth is at the margin to provide adequate nutrition (Worku, 2000). In addition, while cereal production in Ethiopia increased by 17.7 percent from 2005/07, the prices of cereals jumped by 15 percent. This is both due to increases in the price of fuel oil and fertilizers, as well as inefficient market structures (Teshome, 2008).

Due to the diversification of the commodity export base that Ethiopia is pursuing under the Agricultural Development Led Industrialization (ADLI) paradigm, farm exports have grown on average by 25 percent (Tadesse, 2008). Nonetheless, it needs to be underlined here that due to an extensive use of chemical fertilizers, the limited rural Ethiopian land is currently facing a number of environmental challenges. The challenges range from land degradation to environmental pollution. Due to the misguided application of chemicals in agriculture, it is estimated that Ethiopia has accumulated one of the largest stockpiles of obsolete pesticides on the African continent (Edwards, 2004). Therefore, we can generalize that the sharp increase in the price of agricultural outputs could be attributed to the limited production technologies currently available in rural Ethiopia.

What is more, Ethiopia is heavily indulged on growing horticulture commodities in order to diversify its exports and earn foreign exchange. Given this, Ethiopian farmers are reducing the production of more essential edibles. Instead, they harbor the production of horticultural commodities in order to amass strong foreign currency. More particularly, most of the agricultural land in the proximity of highways is tailored to the production of horticultural crops (i.e., floriculture fruits and vegetables) for export. The reduction of its limited land holdings to the production of horticulture products has accentuated the price of the staple products. Since the market for horticultural products is strongly dependent upon knowledge, human capital, and technical inputs, “small producers are frequently eliminated from markets for failure to understand market dynamics or because of their inability to meet new production, sanitary, and quality standards” (USAID, 2005). Given this fact, it can be argued that in the long run, the dependency of Ethiopian farmers on the production of horticultural commodities is not only less lucrative but also environmentally costly. For instance, the pattern was the same in other similar countries that imported agro-chemicals (viz., herbicides, pesticides, and fertilizers) for horticultural products. They would not only exhaust the productivity growth of their agricultural land, but also create toxic and hazardous waste that could pollute the surrounding environment and damage human health (e.g., Desta, 1998; Edwards, 2004).

Inflation as a monetary phenomenon
According to Monetarist economists, in every case where the inflation rate of a country is high for any sustained period of time, its rate of money supply growth is also high (e.g., Friedman, 1959). In accordance with this, the National Bank of Ethiopia has recently responded by tightening the monetary policy in order to tackle the chronic level of inflation. However, to examine if a relaxed monetary policy has been the source of inflation in Ethiopia, the role played by financial and non-financial intermediaries in the supply of money stock needs to be factored out.

In Ethiopia, financial intermediaries may accelerate inflation if the National Bank of Ethiopia relaxes its financial and monetary policies that regulate the Ethiopian financial intermediaries to maintain the statutory liquidity requirement of demand and time deposits. In addition, an increase in money supply could accelerate inflation if the central bank substantially reduces the discount rate or buys existing government bonds from investors. The discount rate is the interest rate charged by the National Bank of Ethiopia when member banks borrow from it.

As shown in Table 1, Ethiopia seems to have been driven into an inflationary trap because there was an increase in the country’s broad money supply (i.e., currency in circulation, demand deposits, savings deposits, and time deposits) from 19.4 percent in 2002 to 23.3 percent in 2006. Ethiopian banks adopted a relaxed monetary policy to help promote the financial markets. That is, the banks overused their reserve facilities to boost their credit portfolio (Teshome, 2008). The excess reserve in Ethiopia occurred due to more savings. As persuasively argued by Demissie, “the demand for bank credit rose sharply to finance large-scale investment projects by the public enterprises and the rapidly expanding private sector. Substantial negative real interest rates and commercial banks’ excess reserves facilitated the rapid expansion of credit” (2008).

From 2002 to 2006, Ethiopia’s real GDP increased by 6.8 percent (See Table 1). Instead of adjusting the money stock with the increase in GDP, the country’s money supply accelerated by about 18 percent, contributing to an average 12 percent increase in the rate of inflation. The link between money supply and other determinants of growth is not an automatic process. However, if we abide by the principles of the transmission mechanism, we can argue that the increase in money supply in Ethiopia might have contributed to an increase in investment thereby leading to an acceleration of economic growth. In addition, though it is very difficult to document, the inflow remittance through the informal channels from abroad might have contributed to the soaring of prices in the Ethiopian market of goods and services. Thus, the lesson to be ascertained from this analysis is that to successfully jump out of the inflationary trap, the Ethiopian monetary authorities need to tighten the stock of money in the country. In other words, a tight monetary policy could serve as an anchor for inflationary pressure in Ethiopia. However, the problem of inflation in the Ethiopian environment cannot be tackled without addressing the large budget deficit.

Fiscal Deficit and Inflation
Tax levy in underdeveloped countries is generally very low. In addition, a government cannot or does not find it politically feasible to raise taxes when it needs to increase government spending. During wartime, the need to rapidly increase military spending results in government expenditures rising faster than tax revenues. The desire of the government to reduce taxes in the face of a continued high level of spending can lead to large budget deficits. Large budget deficits can be the source of inflationary monetary policy. As argued by Meier, “When financing of government expenditures by money creation exceeds the non-inflationary limit, total spending in the country becomes greater than production valued at stable prices. Prices rise and the balance of payments tends to go into deficit” (1995, pp. 176; see also Johnson, 1966).

To promote more investment; to maintain law and order within its highly volatile domestic environment; and to ascertain peace and tranquility with its neighbors, the Ethiopian government has been running a budget deficit of between five and six percent of GDP per year (See Table 1). Government deficit could be financed by selling government savings bonds (monetization of the debt) if there is a highly developed capital market. However, capital markets barely exist in Ethiopia. Thus, the Ethiopian government has either depended on external sources of finance or has financed its budget deficit by printing high-powered money (currency and deposits at the National Bank), which serves as a reserve for commercial banks and allows commercial banks to expand their loans (Johnson, 1966; Meier, 1995, pp. 177; Hassan, 2008). Since donor funds have not greatly increased in 2007/08, it is reasonable to assume that the government’s commitment to finance large-scale capital projects and infrastructure improvements has contributed to the sustained inflationary period (AfDB/OECD, 2007).

Summary and policy implications
For the last five years, Ethiopia has recorded sustaining economic growth. Moderate inflation is an inevitable consequence of sustained economic growth. It can enhance economic growth by mobilizing the resources of a country. However, inflation in Ethiopia is beyond the break-even point. Instead of stimulating economic growth, inflationary pressure in Ethiopia seems to be on the verge of distorting the allocation of resources and is likely to be a deterrent to undertaking productive investments. With a substantial increase in prices, Ethiopian banks are on the verge of lending to the least solvent borrowers to keep from bankrupting themselves. In addition, as the value of the domestic currency depreciates, domestic savers may decide to invest abroad.

Rampant inflation proliferates inefficiencies and disrupts investment. It takes time and proper policy to adequately damp inflationary fires. The supporting price controls implemented by the Ethiopian Government as knee-jerk responses to inflation might be effective for a short period of time. In fact, political and economic agitators may be calmed by government subsides, supplements, and price floors, as well as an increase in interest rates and reserve requirements. Banning speculators in futures trading of edible products and preventing rising prices with government subsides might not halt the rampant inflation. Inflation creates more inflation unless long-term stabilization programs are pursued. Let it be assumed that the National Bank of Ethiopia is allowed to function independently. Furthermore, assume it is immune from political pressures to tighten its monetary policy, such as auditing of financial institutions to maintain reserve requirements or forcing banks to indulge in prudent lending procedures. However, granting legal independence to a central bank is not sufficient to keep monetary policy effective on a sustained basis unless the central bank also dominates the fiscal policy of the government. In other words, the framework of fiscal policy should result in a monetarily dominant regime. Granting legal independence to the central bank, the fiscal policy regime must be such that it does not allow changes in the price level to become the mechanism through which the condition for government solvency is satisfied (Canzoneri et al., 1998).

A stabilization program may include a drastic cut in the money supply (while cutting government expenditures) or a devaluation of the currency. These policies can have their own inertia and usually induce an unexpected inflation. Since a large portion of inflation in Ethiopia is due to a price surge in edible and finished products, one of the long run strategies for suppressing inflation and increasing employment in Ethiopia is to balance the aggregate demand with long-run aggregate supply. Aggregate demand is a combination of the price level and real output at which the money and commodity markets are both in equilibrium (Gordon, 2009).

If Ethiopia is to achieve long-term sustainable growth, its developmental process has to be rooted in the Ethiopian system of thought and its people-centered approach, rather than depending on the Western capitalist model of industrialization by invitation to gain various forms of external assistance. Since agriculture is the backbone of the Ethiopian economy, its sustainable development model must be one of self-sufficiency—to feed its own people instead of producing environmentally-insensitive horticultural products to amass foreign currency. Contrary to expectations, Ethiopian horticultural commodities are sold at very low prices. Additionally, they lack markets to absorb production, often involve a large number of middlemen, and lack marketing institutions to safeguard farmers (Gebremedhin, 2007).

Given the resources and techniques of production, the Ethiopian agricultural sector seems to have exhausted its productivity growth. To improve productivity under these conditions would require substantial investment in research and development. For example, since deforestation, desertification, increase in population, shortage of water, and air-related disease are to a large extent the symptoms of poverty, the poor need to be organized to formulate and implement their own development strategies and ensure that their basic needs are fulfilled. Based on land security and adhering to environmentally-sensitive, cooperatively-managed systems, it reasonable to assume that Ethiopia would not only achieve growth and equity (with full employment and modest inflation) but could also empower the Ethiopian people to fully participate in the design and management of long-lasting development paradigms (Kofi & Desta, 2008).

Table 1

Ethiopia’s GDP, Inflation, Broad Money, Public finance, Investment, Savings, and Current Account Balance, 2001-2008

Year
Real GDP

Growth rate (%)
Inflation rate (%)
Broad money increase (%)
Government budget/GDP (%)

Gross Capital Formation, % GDP
Domestic Saving, % GDP
Current Account Balance (%)/

GDP

2001/02
1.6 d
7.2 b
19.4 b

2002/03
-4.5 b
15.1 b
12.3 b

2003/04
11.5 b
8.6 b
20.0 b
-7.4 d
12.4 d
5.4 d

2004/05
10 c
9.2 c
16.4 b
-5.8 d
11.4 d
2.6 d
-9.1 a

2005/06
9.7 c
9.0 c
23.3 b
-7.4 d
11.4 d
5.2 d
-10.2 a

2006/07
9.0a
18.0 a
29.7
-5.8 d
12.0 d
8.1 d
-14.4 a

Notes: a Economic Intelligence Unit (1997, 1998, 1999, 2006). Ethiopia: Country outlook. EIU Views Wire.

b International Monetary Fund (2008, April). International Financial Statistics.

c The World Bank Group (2007, April). Ethiopia. World Development Indicator Database.

d1 International Monetary Fund (2007, June 15).

d2 AfDB/OECD (2007). African economic outlook: Ethiopia.

References
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Barro, Robert (1996, May/June). Inflation and growth. Federal Reserve Bank of Saint Louis Review.

Canzoneri, M. M., Cumby, R., & Dibba, B. (1998). Is price level determined by the needs of fiscal solvency? CEPR Discussion Papers, No. 1772.

Demissie, M. (2008, January 19). IMF’s assessment on the Ethiopian economic growth. The Ethiopian Reporter. Retrieved April 8, 2008, from http:/www.theafricmonitor.com/news/ethiopian/april2008/030408/wpf.htm

Desta, A. (1993). International political risk assessment for foreign direct investment and international lending decisions. Needham Heights, MA: Ginn Press.

Desta, A. (1998). Environmentally sustainable economic development. Westport, Connecticut.

Desta, A. & Kofi, T. (2008). The saga of African underdevelopment: A viable approach for Africa’s sustainable development in the 21st century. Trenton, NJ: Africa World Press.

Edwards, S. (n.d.). Greening Ethiopia for self-sufficiency. Institute of Science in Society. Retrieved June 23, 2004, from http://www.i-sis.org.uk/GreeningEthiopia.php

ESSGA (2006, November). Food and agriculture indicators: Country Ethiopia.

Friedman, M. (1959). A program for monetary stability. New York: Fordham University Press.

Gebremedhin, H. E. (2007). Constraints and opportunities of horticulture production and marketing in eastern Ethiopia. Drylands Coordination Group (DCG), Norway.

Girma, B. (2008). World food program lauds government measures to stabilize grain market.

Goodo, S. (n.d.). Ethiopia: Soaring inflation deepens economic crisis. Retrieved April 9, 2008, from http://www.americanchronicle.com/articles?55196

Hossain A. & Chowdhurry A. (1996), Monetary and financial policies in developing countries. London: Routledge.

Johnson, H. G. (1966, April). Is inflation the inevitable price of rapid development or a retarding factor in economic growth? Malayan Economic Review, Vol. 11, No. 1.

Jung, S. W. & Marshall, J. P. (1996). Inflation and economic growth: Some international evidence on structural and distortionist positions. Journal of Money, Credit, and Banking, Vol. 18, No. 2.

Kassahun, R. (2002, August). Structural adjustment and macroeconomic reforms in Ethiopia.

Meier, G. M. (1995). Leading issues in economic development (6th ed.). New York: Oxford University Press.

Tadesse, T. (n.d.). Ethiopia keeps 10.8% GDP growth forecast for 2008. Retrieved May 15, 2008, from http://Africa.reuters.com/business/news/usnBAN5321131.html

Teshome, A. (2008, May 14). Response to Dr. Said Hassan: On the cause of the current soaring inflation rate. Retrieved May 29, 2008, from http://www.waltainfo.com/Analysis/2008/May/41111.htm

USAID (2005). Global Horticulture Assessment. California: University of California, Davis.

Worku, Z. (2008). Is sustainable food security possible in Ethiopia? Retrieved April 9, 2008, from http://www.etiopians.com/foodsecurity/Zemrdeworku_foodsecurity.htm

Let’s Shun Playing Politics for a Change and Rally for a Common Cause

2008-06-19T01:39:00.000-07:00

(By Mulubrhan Tsehaye, June 17, 2008)

For some time now, we have been hearing through various media outlets about the threat of starvation and people in need of emergency food aid in the southern and eastern parts of the country. The same media sources have also been reporting that a significant number of children are reportedly malnourished. We, Ethiopians should take this familiar grim news about a possible threat of drought and malnutrition with utmost sense of distress for it has affected our nation successively before with a devastating effect of immense proportion. Our country’s famine of 1974 and 1984-1985 that claimed millions of innocent lives is fresh in our minds and this alarming news should be a harsh reminder of a possible catastrophe hovering over our nation if it is not dealt with immediate and speedy response. It is obvious that this calamity has been caused by a number factors including the global high food prices, the global increase in oil prices, the increase of bio-fuel production using edible crops and of course to all these was added the failure of rains. While droughts are usually directly caused by the forces of nature beyond human control such as those like the failure of rains or even the global food crisis etc, functional democratic institutions and a government with effective early warning mechanism, a swift emergency response and a broad public participation in coordinating assistance to the needy can play a vital role in saving lives.

Yes, there are some conflicting reports, mainly from sources of the Ethiopian government that contend that the magnitude of the problem is exaggerated and the number of citizens under the threat of starvation in those parts of the country is considerably lower than that has been reported by the international media. Be that it may be however, the overriding issue that requires a particular attention should not be whether or not the reporters were quick to exaggerate or undermine the magnitude of the disaster or how high or low the number of malnourished children is. It is rather how to quickly and swiftly react and ward off this potentially catastrophic crisis. One starving child is too many and no child should be left starving no matter how difficult and challenging it is to reach each and every individual. The government thus has to avoid being tangled in a rather needless argument as to whether the magnitude of the disaster was exaggerated by some reporters or some of the aid agencies are ballooning the number of victims to sustain their employment etc. First of all, what bad can come out of exaggerating the gravity of the problem and overwhelming it with a excessive response? One would imagine that excess flow of aid would not be a challenge that the malnourished children wouldn’t be able to handle? The government thus ought to continue focusing its full attention on how to confront the challenge at hand head-on and work relentlessly to effectively coordinate and speedily deliver the critically needed aid in order to successfully avert the potentially severe calamity of malnutrition or even starvation in those parts of the country.

Secondly, it is a public secret that Ethiopia under the current government has been registering a remarkable and rather unprecedented successive economic growth that is slowly pulling the country out of the deeply rooted poverty and long standing backwardness. These are real and tangible achievement records of the ruling party that are unmistakably visible through out the nation. Whether this year or next year there happens to be failure of rains, malnutrition or not the visible economic progress all over the country is the result of some of the polices put in place by the ruling party and no matter what the its adversaries might say, the people of Ethiopia are the primary witness of these visible steps forward. Nobody can take away this from the government of EPRDF. Thirdly, as far as political records go, since the get go, the current government is the only government in the history of our nation that officially declared that poverty is the principal enemy of our nation and it will concentrate all its efforts on eradicating poverty that has devastated and humiliated Ethiopia for the past centuries. Now, regardless of how significant progress has been registered and how far the nation has marched forward in the path of economic growth, there are and will be still massive economic and social problems that entail to be undertaken including the threat of drought or even starvation every time rain fails or any other natural disaster strikes. It is obvious that in poverty stricken countries like ours, the journey to completely stamp out the longstanding and deeply-rooted poverty can not be accomplished overnight for it is a colossal task that poses a particular challenge of an immense proportion.

Of course, those few disingenuous Diaspora extreme elements will always try to politicize unfortunate natural phenomena like this to proliferate their political agenda. Instead of being alarmed by potentially serious reports like this and try to do whatever they can to help their compatriots, they are scrambling on to taking cheep shots against the ruling party in a bid to score some cheep political scores by blaming the current government about every misfortune that might take place on this Earth. It is a public record that these extreme elements have been blatantly roaring and campaigning against any aid for Ethiopia just because the current ruling party happens to be their adversary. While they are aware that the principal beneficiary of such aid is the poor and needy, they were and are prepared to pursue their selfish political agenda even if it means depriving the poor and destitute the critically needed help. True to their character, on one hand, they have made it their mission to lobby relentlessly all the donors including the European Union and World Bank and others to cancel any short term or long term developmental aids and loans that might be aimed at combating poverty and the reoccurring droughts in the country. And now, on the other hand, they are preaching that the current government is deliberately impoverishing and even starving the people and the reports of food shortage and malnutrition are the ruling party’s own making. Of course, to those of us who are accustomed to the mind setting of these rather deranged narcissists whose principal goal is merely reinstating themselves to power by any means necessary, their blame game does come as a bolt from the blue and nothing they attempt to say or do should be of any value.

The good new is however these narcissists are the minority and their narcissist ideals do not reflect in any way the patriotic fortitude of the majority of Ethiopians in and outside the country who truly understand the situation on the ground and are genuinely determined to do whatever they can to help and at the same time pressure the government to rise up to the challenge and react swiftly and effectively to ward off the looming calamity before it goes out of hand. Thus, Ethiopians of all political persuasions with an independent choice of rational outlook that is merely focused on the wellbeing of the ordinary Ethiopian people need to put our respective political differences on hold and get together now and mobilize our efforts to do our outmost share to quickly foil the threat posed to our compatriots for we owe it to the children in need. Playing politics and bickering at each other from a safe distance will never have any positive effect on the endeavor to combat this threat. Yes, we may have political difference and some of us are profoundly opposed to each other on many social and political issues but this is not politics; it is rather a common predicament of every citizen that entails a coordinated thrust by a force of unison.

Comments: mulu02@shaw.ca

Statement at the Conclusion of the 2008 Article IV Consultation Mission to the Federal Democratic Republic of Ethiopia

2008-05-20T05:10:00.000-07:00

An International Monetary Fund (IMF) mission team, led by Mr. Robert Corker, visited the Federal Democratic Republic of Ethiopia during May 7-19, 2008, to conduct discussions for the 2008 Article IV consultation. At the conclusion of the visit, the mission issued the following statement:
"Ethiopia has recorded impressive growth during the past few years—the fastest for a non-oil exporting country in Sub-Saharan Africa. Growth has been supported by structural reforms and infrastructure development, as well as favorable agricultural conditions. Rapid growth has contributed to poverty reduction and progress toward the Millennium Development Goals (MDGs). However, it has also been accompanied by rising pressures on prices and international reserves, exacerbated by sharply higher world oil prices. In March, the 12-month increase of overall inflation was 30 percent, with food price rises of 40 percent (year on year) having a particularly strong negative impact on the urban poor. Reserves were below 2 months of imports.
"The consultation discussions focused on policies to reduce inflation while preserving the growth momentum. In this regard, the mission supports the authorities' objectives to return to single-digit inflation and rebuild reserves to three months of imports. It recognizes the measures taken so far to achieve these objectives, including through actions to slow broad money growth to below 20 percent.
"To place inflation on a firmly declining path the mission advised the authorities to support efforts to reduce monetary growth through a tightening of fiscal policy in FY2008/09 (July-June). It also recommended the authorities seek additional external financing on a grant or concessional borrowing basis to buffer the severe effects of high world oil prices on the balance of payments and soften the impact of domestic policy tightening on economic activity. Such financing, for example, could facilitate needed investments in the power sector without crowding out private domestic borrowing.
"Over the medium term, the mission expressed support for the government's overall strategy to strengthen the foundations for growth—with an increasing role for the private sector—while preserving macroeconomic stability. Key aspects include scaling up public sector investment in infrastructure, health and education, while maintaining a sustainable debt position, and boosting overall economic activity through commercialization of agriculture and fostering the non-farm private sector.
"The mission emphasized that it will be critical to strike a judicious balance between demand-dampening and growth-enhancing measures in the next few years to achieve macroeconomic stability and permit a return of international reserves to a comfortable level. This will allow the Ethiopian economy to become more resilient to shocks.
"The mission would like to thank the authorities for frank and open discussions, as well as the warm hospitality extended to the team."

Rising Food Prices Revolution needed to meet coming food demands

2008-05-09T05:37:00.000-07:00

By Alex Evans and Eyasu Solomon
April 2008
Food prices are rising fast. In 2006, the FAO food price index rose by an average of 9 per cent compared with the previous year. By 2007, that figure had increased to 23 percent – 37 per cent if December 2007 is compared with December 2006. Over the last three years, according to the World Bank, global food prices have increased by 83 percent. While high price events are not unusual in agricultural markets – even if food prices stabilize at 25 per cent above their 2001 level, this would still only bring them to early 1990s levels – the unusual feature of the current situation
is that the price spike applies to almost all major food and feed commodities, rather than just a few of them. The move to current price levels has also been unusually sudden. As recently as 2005, the Outcome Document from the UN World Summit noted the need to ‘address the impact of weak and volatile commodity prices and support the efforts of commodity-dependent countries to restructure, diversify and strengthen the competitiveness of their commodity sectors’. Less than three years later, corn is at around its highest level in 11 years, rice and Soya are at their highest level in 34 years, and wheat – like crude oil and gold – has recently touched its highest level ever. This briefing paper focuses on what this important change means for international development. It starts by assessing the drivers of rising prices, noting that while in the short term the pressure is on the demand side, a suite of ‘scarcity issues’ – climate change, water scarcity, energy security, pressure on land – will increasingly affect the supply side over the longer term. The paper then discusses the implications of higher prices for developing countries, before setting out a brief survey of implications for development policy, focusing in particular on humanitarian assistance, but also touching on increasing supply, helping low income countries to benefit from rising prices, scarcity issues, trade and the question of fair shares.
At present, the main drivers of increasing prices are on the demand side. Historically, demand growth for food has been about 1. 5 per cent each year; now, however, it has risen to 2 per cent, and Goldman Sachs estimate that it will be as high as 2. 6 percent within a decade. The World Bank estimates that food production will need to grow by another 50 per cent by 2030 (and 85 percent for meat) to fulfill projected demand. A particularly important part of the picture has been rapidly rising income growth, notably in emerging economies such as China and India. Joachim von Braun, Director General of the International Food Policy Research Institute (IFPRI), argues that high income growth accounts for perhaps half of the recent increases in food prices. As middle classes grow more affluent, food consumption patterns change too – often towards diets richer in meat and dairy products that are much more intensive in terms of both grain and water use. The role of bio fuels as a source of demand for grain has also been a significant element of recent food price rises (von Braun estimates 30 per cent of the picture). The US already spends $7 billion a year supporting ethanol. This consumes 20 per cent of America’s corn crop – a figure likely to rise to 32 per cent by 2016. Looking ahead, the EU has a target for 10 per cent of its transport fuel to come from bio fuels by 2020, while the US has proposed a target of 36 billion gallons of renewable fuel by 2022. But there are also supply factors in play. In the shorter term, one issue is that food supply is quite inelastic, i.e. supply responds relatively slowly to increases in demand. IFPRI estimate that aggregate agricultural supply increases by only about 1–2 percent for each 10 per cent increase in price – and by even less when (as now) prices are very volatile. The problem of reduced exports from important food producers (such as India, Argentina and Kazakhstan) is also problematic, especially when matched by importing countries seeking to purchase larger than normal volumes of food in order to build up stockpiles. Another shorter term supply-side issue is that some current price volatility is attributable to speculative investors seeking safety in commodity markets from the weak dollar and from falling equity and bond markets – although opinion is divided over how significant a factor this is. There is also the factor of low inventory stocks, which explains some of the current market volatility. In the short term, food prices look set to ease somewhat, particularly if (as now seems likely) the northern hemisphere enjoys a good wheat crop. But in the longer term, four more fundamental supply-side factors – which might collectively be termed ‘scarcity issues’ – are already starting to make themselves felt, and are likely to become more significant. First, the costs of agricultural inputs – and especially energy – are rising. Today’s global agricultural system is predicated on the availability of cheap, readily available energy, for use in every part of the value chain: both directly (e.g. cultivation, processing, refrigeration, shipping, distribution) and indirectly (E.g. manufacture of fertilizers, pesticides – the cost of urea, a fertilizer, has almost tripled since 2003). But as noted earlier, oil prices are already at their highest ever level; many analysts expect them to stay relatively high over the medium to long term. In addition, since food can now be converted into fuel, there is effectively an arbitrage relationship between the two, implying an ongoing linkage between food and fuel prices. Second, water scarcity is likely to become a more pressing issue. Global demand for water has tripled in the last 50 years; 500 million people live in countries chronically short of water, and this number is likely to rise to 4 billion by 2050. A particular worry is depletion of limited groundwater resources, on which some parts of the world including the US, Egypt, Pakistan, India and China – have been enjoying a ‘free ride’ for the past two or three decades. Third, there is the issue of land availability. Some commodities analysts argue that whereas historical increases in demand have been met through increasing yields, in future an expansion of acreage will also be required. However, this will be expensive, given the infrastructure investment involved; there may also be diminishing returns, since much of the best land is already under cultivation. Above all, there is simply increasing competition for what land there is, including food, feed, fibre (e.g. timber, paper), fuel, forest conservation, carbon sequestration and urbanization, on top of high rates of soil loss to erosion and desertification.
The FAO estimates that there is at most 12 per cent more land available that is not already forested or subject to erosion or desertification, and that 16 percent of arable land is already degraded. The fourth, and perhaps most fundamental, factor is climate change. Overall, the International Panel on Climate Change (IPCC) projects that global food production could rise if local average temperatures increase by between 1 and 3 degrees Celsius, but could decrease above this range. Crucially, however, this is before extreme weather events are taken into account; and the IPCC judges that extreme weather, rather than temperature, is likely to make the biggest difference to food security. Glacial melting will affect agriculture as well: the IPCC estimates, for example, that many Himalayan glaciers could disappear by 2035, with catastrophic results for Chinese and Indian agriculture during the dry season. Its assessment is also that
‘climate change increases the number of people at risk of hunger’, and will lead to an increase of between 40 million and 170 million in the number of undernourished people. Many of these factors, on both the supply and the demand side, also apply to fisheries and aquaculture. Demand for fish and seafood is rising sharply, again largely because of increasing affluence. But while the FAO estimates that an additional 40 million tonnes of aquatic food a year will be needed by 2030, it also notes that catches of wild fish have remained roughly stable since the mid-1980s, at around 90 million tonnes a year, and forecasts that this figure is unlikely to rise substantially.
These underlying trends will place increasing emphasis on aquaculture, which last year accounted for 43 per cent of fish consumption (up from just 9 per cent in 1980). However, future expansion of the sector will depend not only on increasing investment capital, but also on availability of land, fresh water and energy –which as noted above, are all already subject to stresses of their own.All in all, the jury is still out on whether recent food price rises will be sustained or not. Many commentators, including the World Bank, estimate it will take ‘several years’ for supplies to increase to rebuild stocks and allow prices to fall. However, over the longer term, structural factors – a population forecast to rise to 9.2 billion by 2050, rising affluence and the four ‘scarcity trends’ referred to above – suggest the possibility of a structural, rather than merely cyclical, shift. Models from both IFPRI and the US Department of Agriculture show that while food prices will not rise much more over the next decade, they are also unlikely to fall significantly.
Rising food prices will hit poor countries and poor people hardest, and will present an obvious impediment to achieving the Millennium Development Goal of halving hunger by 2015. The FAO has already announced that 36 countries are in crisis in terms of food security, and will need external assistance; of these, 21 are in Africa (although not all of them have been affected equally).Poor people typically spend a high proportion of their income on food purchases: Oxfam put this figure at around 50–80 per cent. Of particular concern are landless poor people in rural areas. Most poor people are rural, and most rural poor people are net food buyers, who are unlikely to be compensated fully by additional employment as agriculture grows, or by higher wages. However, the extent and rapidity of current rises mean that urban populations are also being hit, as World Food Programme head Josette Sheeran recently noted: ‘There is food on shelves but people are priced out of the market. There is vulnerability in urban areas we have not seen before.’
High food prices are already posing extensive challenges to the provision of humanitarian aid. The World Food Programme currently feeds 73 million people in 78 countries (less than a tenth of the world’s undernourished). Its agreed budget for 2008 was $2.9 billion, but rising costs – for logistics as well as for food itself – mean that, according to the WFP, this level will not even cover current deliveries and at least $500 million more will now be needed. Josette Sheeran raised the possibility in a recent interview that the agency would have to look at ‘cutting the food rations or even the number of people reached’ if the additional funding were not forthcoming. Improvements in aid quality are needed too: humanitarian aid still needs to shift to a proactive insurance model from its current reactive configuration. Although the Central Emergency Response Fund – in which funds are allocated before emergencies – is likely to meet its 2008 target of $500 million, this remains a small proportion of the overall requirement. Humanitarian requirements in 2007 were $4 billion, for example, and the older, more reactive Consolidated Appeals Process remains the main window for funding.
Numerous countries have already reacted to rising food prices with concern and a broad range of policy interventions designed to address the situation. The approach taken by most countries so far (Azerbaijan, Bangladesh, Bosnia, China, Egypt, Ethiopia, the EU, Ghana, India, Indonesia, Mexico, Morocco, Nigeria, Peru, the Philippines, Russia, Taiwan and Turkey) has been to reduce or eliminate import tariffs. However, at least some of these reductions in import tariffs have been offset by the imposition of additional export tariffs or quotas by other countries – some of them major producers – in order to reduce domestic prices (Argentina – where the move has led to major unrest among farmers – China, India, Kazakhstan, Ukraine and Vietnam). Among other approaches currently being tested are making purchases to establish or replenish stockpiles and strategic reserves – which in turn increases pressure on prices (Iraq, Malaysia, Turkey and the UAE); increasing subsidy levels (Egypt, India and Oman); capping prices (China, Russia and Thailand); and examining the possibility of introducing rationing (Malaysia and Pakistan).Various countries have witnessed protests, riots or other forms of civil unrest that are at least partly attributable to rising food prices. At the time of writing, some of the most serious disturbances so far have been in Egypt, Haiti and Lebanon; unrest has also been experienced in Burkina Faso, Cameroon, China, Côte d’Ivoire, Guinea, Mauritania, Mexico, Morocco, Mozambique, Niger, the Philippines, Senegal, Uzbekistan, Vietnam and Yemen. As these lists show, rising food prices are of concern in every part of the world, and so far there is little consensus among governments on what to do about the issue. Currently most donors appear to be in information- gathering mode themselves, although World Bank President Bob Zoellick has called for a ‘new deal’ on food, including a recommendation that countries investigate cash transfers targeted at poor consumers, rather than the less efficient option of regulating food prices across the entire economy. There is significant scope for donors to help developing countries to share information on which approaches have worked where.
The World Bank has argued that more expensive food imports will disrupt the trade balances of relatively few countries, because the majority will see largely offsetting gains in other commodity exports; from the Bank’s perspective, the countries most adversely affected include Jordan, Egypt, the Gambia, Lesotho, Djibouti and Haiti. However, the impact of rising food prices needs to be looked at in tandem with concurrently rising energy prices, which are also imposing strain on many importing countries. An International Energy Agency study in December 2007 found that the rising cost of oil had already wiped out the benefits of increased aid and debt relief to 13 non-oil-producing African countries including South Africa, Ghana, Tanzania, Ethiopia and Senegal. According to the IEA, the increased cost of oil bought by these countries since 2004 was 3 per cent of their combined GDP – more than the total sum of debt relief and aid they had received over the past three years. If the combined effect of higher food and energy prices is to create balance-of-payments problems for countries, the question of compensatory financing may emerge as a significant issue. So far, the International Monetary Fund reports that demand for financing from funding windows such as the Exogenous Shocks Facility has been low, although critics retort that this is at least in part because of the significant conditionality attached to such lending. It is also important to note that funding windows designed to provide liquidity on shocks such as sudden changes in terms of trade are built on the assumption that such shocks will be short-lasting. If – as suggested earlier – food prices have risen as a result of a longer- term structural shift, then there are open questions about how quickly countries taking out loans will be able to pay them back, potentially heightening pressure to increase the concessional element of such loans.
What does all this mean for policy-makers – and especially? For donors?
Start with what rising food prices mean for the humanitarian system, where short-term pressures are likely to be most acute. First, consider the issue of aid volume in the context of humanitarian assistance. As noted earlier, the World Food Programme has called urgently for an additional $500 million. Given the scale of recent food price increases, it does appear likely that additional funds will be needed just to maintain current levels of food assistance. It would be of particular concern if the US were to follow up on suggestions that it might reduce the amount of food aid it provides to the WFP as a result of rising prices and costs, given that the US is by some distance the largest donor to the programme.(Washington is reported to have told the WFP that it is facing a 40% increase in food commodity prices compared with last year, and hence will ‘radically cut’ the amount it gives away – although more recently it has announced a $200 million increase in food aid, suggesting that this risk may have abated somewhat. But at the same time, more specificity is needed on how the WFP’s headline figure breaks down. It would be useful, for example, to know how the $500 million would be distributed between different types of aid (such as food aid, vouchers or cash transfers), and between which recipient countries. It is also essential that the WFP’s call for additional funds be set in the context of the needs of the UN humanitarian system as a whole, given that the programme accounts for only around half of total global food aid.52 While there is no doubting the WFP’s effectiveness in setting out its case, donors also need to hear from other multilateral agencies (notably UNICEF, the UN Development Programme, FAO and the World Health Organization), and ensure that OCHA (the UN’s Office for the Coordination of Humanitarian Affairs) is in the lead on coordinating funding calls as well as other emergency action from across the sector. This raises the question of wider humanitarian
system coherence. While progress was made in 2005 on Strengthening OCHA’s coordination role at global level, on the role of Humanitarian Coordinators in country and in the use of pooled funding arrangements, much remains to be done. The WFP has much to contribute here. It is fair to say that at the time of the UN High Level Panel on System-Wide Coherence in 2006, the WFP was not among the principal enthusiasts for a more coherent approach. But as the humanitarian system moves into a demanding context with the potential for faster-paced operations, better interagency coherence becomes more important than ever. On a related note, it would be interesting to explore the possibility of a ‘one UN’ initiative on food security, which could bring a harmonized approach to bear both at the global level and in specific countries (UNDP’s office in Yemen has already been approached by the government with a view to piloting such an approach). Such an initiative might bring together the WFP, FAO, IFAD, UNICEF,UNDP and WHO, and focus on developing and mobilizing resources for a package of policies and programmes, potentially for presentation at the Secretary-General’s summit meeting on the Millennium Development Goals in New York in September 2008. Another important current issue is changing ways of giving humanitarian assistance. As noted earlier, many donors (including the WFP) are increasingly focusing attention on social protection programmes, given that poor countries tend to lack social welfare systems – a deficit that places many poor people with precarious livelihoods at acute risk from economic shocks and stresses. For such vulnerable people, access to food is as important as the availability of food, and social protection programmes can play an important role in closing the gap. But it is important to stress that the current enthusiasm for social protection approaches is relatively novel, and that the evidence base on the effects and challenges of such projects is not yet as extensive as it could be. In particular, humanitarian donors need to be acutely aware of the political impact of a large-scale shift towards the provision of safety nets. If donors provide cash or food directly – as opposed to through national governments – then there is a potential risk of diluting states’ own accountability to their citizens. Better answers are also needed to questions about the potential inflationary impact of some social protection measures, the best combination of cash and in-kind transfers, what kind of targeting and conditionality works best, and so on. It is too soon to see social protection systems as any kind of panacea to the issue of high food prices. Donors should also assess carefully what the value added would be of the WFP’s moving into wider social protection, given the humanitarian sector’s relatively limited experience of social safety nets, and the extent of the organizational change and shift away from traditional core business that this would imply for the WFP. In the background lies the question of what it will mean for humanitarian assistance if (as considered earlier in this paper) the recent shift to higher food prices is structural rather than just a blip – if, in other words, this is the ‘new normality’. At present, around 850 million people are classified as ‘food insecure’. At times of peak demand, humanitarian agencies have been able to feed about 100 million people at the very most. If a longer-term effect of changes in world food markets were to increase the number of people in need of humanitarian assistance significantly beyond that level, then it is not clear that the humanitarian system would have the capacity and knowledge to respond, even if sufficient financial resources were available. It is therefore essential that in addition to coping with the current short-term turbulence in food markets, donors make a sustained effort to ask ‘what if?’ questions and plan for further contingencies.
As discussed above, the implications of higher food prices extend far beyond humanitarian assistance. The Suddenness with which the issue has emerged has raised not only the political stakes, but also the risk of knee-jerk policy responses. Meanwhile, the complexity of the drivers of rising food prices makes a comprehensive approach essential – while also increasing the likelihood of unintended consequences from policy responses. Policy-makers therefore face an awkward and hazardous balancing act between the urgency of responding, on the one hand, and taking enough time to understand the consequences of what they are doing, on the other.
The remainder of this paper identifies some of the larger policy questions that arise for aid donors. In most cases it does not attempt to answer them; at this stage, the aim is to build the evidence base and to act as a catalyst for more intensive and thorough conversations, involving a wider range of actors, with the objective of building shared awareness around the issue. With that caveat stated, consider the following issues: Increasing supply. Perhaps the hardest question is how the world is going to increase food supply to meet the huge rise in anticipated demand noted at the beginning of this paper. Much work needs to be done, quickly, to figure out where this increase is going to come from (both geographically, and in terms of new agricultural techniques and technologies), and what needs to be done to make it happen. An urgent first step towards increasing the available food supply should be to ensure that production of biofuels does not undermine food security – an issue now acknowledged by President Bush, who has commented that ‘If you look at what is happening in corn, you’re beginning to see the food issue and the energy issue collide.’ While an outright ban would probably be unwieldy and undesirable, discussion of basic standards for bio fuels production – with food security at their heart – should be an early priority for policy-makers. Helping low income countries to benefit. While supply increases in the shorter term are likely to come from existing ‘breadbasket’ countries such as the US, Canada, Russia, Ukraine, Brazil and Argentina, there is longer-term potential for lower-income countries to play a significant part as well – especially in Africa, largely bypassed by the first Green Revolution, where productivity remains far lower than in other regions .But although poor countries should in theory be able to benefit from rising prices for agricultural commodities, the reality is that they are held back by poor infrastructure, the need for better access to technology and finance, restrictive supply chain standards and other barriers as well. Aid donors therefore need to be clear about how crucial their role will be in this. Until recently, agriculture was seen as a rather unfashionable relic of the past in many donor agencies (and perhaps especially in their country offices). That needs to change quickly: donors need to invest heavily in programme aid – and in many cases, rebuilding their own capacity – in rural development. Managing scarcity. Donors will also need to be capable of helping countries to devise integrated strategies for managing scarcity in land, water, energy, food and the effects of climate change. The first step towards this is mainstreaming throughout donor agencies a much better sense of how these scarcity trends link to each other – as they all do, frequently in subtle and complex ways. On top of that, donors need to integrate scarcity issues more thoroughly into their governance and economic analyses (as underlined by the role of land disputes as a catalyst for the recent post-election violence in Kenya). Within the specific context of food, a good starting point would be to build a much more comprehensive picture of the overall resource footprint of different foods (and in the process, move the debate on from its current unsophisticated focus on the minutiae of specific variables, such as ‘food miles’). Trade. Donors also need a clearer picture of the trade dimensions of the current food prices issue. As noted earlier, the current picture of food-focused trade measures is growing more complex by the day, as importers lower import tariffs even as exporters raise export tariffs. Meanwhile, some countries – including China – are apparently exploring the potential for bilateral food supply arrangements, of the kind already becoming more common in energy supply. Other countries are displaying enthusiasm for import substitution policies – most notably the Philippines, which has announced its intention to move from being one of the world’s largest importers of rice to self-sufficiency within just three years. Donors and development advocates need to find their way towards a renewed strategic stance on agricultural trade. Even before food prices began their sharp increase, there was lively debate in the donor community about the extent to which agricultural trade liberalization would in practice benefit low-income countries. That debate is now further complicated by the fact that even if liberalization is desirable in principle, careful attention will need to be paid to the need to sequence reforms, in order to avoid (for example) the risk that rapid elimination of Common Agricultural Policy export subsidies could increase food prices in developing countries. Finally, there is the elephant in the room: the long-term question of fair shares, pithily illustrated in a recent cartoon in the US in which a portly man in a suit takes a maize cob out of an African child’s food bowl, with the speech bubble, ‘Excuse me. I’m going to need this to run my car.’ Inequality between countries is falling for the first time in a generation. From 2003 to 2007, per capita income grew faster in every region of the South than in developed countries: hardly news in East and South Asia, but a major shift in Latin America and Africa. In 1980 developed-country GDP was 23 times higher than in developing countries; in 2007 it was 18 times higher. Yet even as inequality between countries falls, it is rocketing within them – particularly within developing countries, and above all in emerging economies such as China, where the difference between the top 20 per cent and the bottom 20 per cent has grown by 40 per cent over the last three years.
In his book Development as Freedom, Amartya Sen observes that ‘the focus has to be on the economic power and substantive freedom of individuals and families to buy enough food, and not just on the quantum of food in the country in question.’ Later, he observes that ‘[some] who buy food may be ruined because the real purchasing power of their money incomes may have shrunk sharply. Such a famine may occur without any decline in food output, resulting as it does from a rise in competing demand rather than a fall in total supply.’ Now, Sen’s questions may be starting to apply at the global level. Even while the line between developed and developing countries grows more blurred with each passing year, the gulf between the haves and the have nots has never looked wider. In a context of increasing tightness of food supply – which is likely to grow further as population, affluence and scarcity trends all continue to rise – we may well reach a situation in which relative inequality can have absolute implications for the world’s poor, and in which a burgeoning global middle class inadvertently takes food beyond the purchasing power of the world’s poorest people. Indeed, we may already be there.
This is a time of massive change for global food policy, in developed as well as developing countries. In addition to the concerns discussed in this paper about what higher food prices mean for poor people, there are questions about environmental standards; obesity and health; animal welfare; competitiveness, between countries and companies; the security of globalized ‘just-in-time’ supply chains; and numerous other issues. At the heart of these debates is the deceptively simple question: what should global food policy be trying to achieve? We need to be clear at the outset about the nature of the choices that we face. There are real tradeoffs between different potential objectives in food policy – such as competitiveness for consumers, security of supply, environmental conservation, local sourcing. That raises the question: who is the ‘we’ that decides the shape of 21st-century food policy? Who has the power to make choices?
Evans & Eyasu can be reached at alex.evans@JHU.edu&EYASOL@AOL.com

Obama Reportedly Will Declare Victory

2008-05-09T05:24:00.001-07:00

By DAVID PAUL KUHN,politico.com
Not long after the polls close in the May 20 Kentucky and Oregon primaries, Barack Obama plans to declare victory in his bid for the Democratic presidential nomination.
And, until at least May 31 and perhaps longer, Hillary Clinton's campaign plans to dispute it.
It's a train wreck waiting to happen, with one candidate claiming to be the nominee while the other vigorously denies it, all predicated on an argument over what exactly constitutes the finish line of the primary race.
The Obama campaign agrees with the Democratic National Committee, which pegs a winning majority at 2,025 pledged delegates and superdelegates—a figure that excludes the penalized Florida and Michigan delegations. The Clinton campaign, on the other hand, insists the winner will need 2,209 to cinch the nomination—a tally that includes Florida and Michigan.
"We don't accept 2,025. It is not the real number because that does not include Florida and Michigan," said Howard Wolfson, one of Clinton's two chief strategists. "It's a phony number."
Wolfson said they intend to contest the DNC's 2,025 number "every day," as well as any declaration of victory made by Obama based upon that number, because it does not include Florida and Michigan.
In January, Clinton won both states by wide margins when Obama did not actively contest them. The two states were stripped of their delegates for holding early primaries not sanctioned by the Democratic National Committee.
Obama will not reach the 2,025 magic number on May 20. Rather, on that date he is all but certain to hit a different threshold—1,627 pledged delegates, which would constitute a winning majority among the 3,253 total pledged delegates if Florida and Michigan are not included.
"On May 20 we're going to declare victory," said an Obama senior advisor who asked that his name be withheld to speak candidly, adding that after those contests they will be "the ones with the most pledged delegates and the most popular votes."
While the nature of that declaration of victory is "still developing," in the advisor's words, the Obama campaign contends that the winner of a majority of pledged delegates should be the party nominee.
"Senator Obama, our campaign and our supporters believe pledged delegates is the most legitimate metric for determining how this race has unfolded," wrote Obama campaign manager David Plouffe Wednesday in a memo to superdelegates. "It is simply the ratification of the DNC rules - your rules - which we built this campaign and our strategy around."
More StoriesBut the Clinton campaign's insistence on counting Florida and Michigan would alter not only the overall delegate math, but the pledged delegate math as well. Because if the two states are included in the count, the total number of pledged delegates would rise from 3,253 to 3,566—which means the magic number for a majority rises to 1,784, not 1,627 as the Obama campaign asserts.
By hewing to that interpretation, the Clinton campaign would thus be able to raise doubts about a May 20 declaration of victory by Obama.
Since the earliest possible resolution of the Florida/Michigan dispute is May 31, when the DNC Rules and Bylaws Committee will meet in Washington to address petitions from Michigan and Florida DNC members, the 11-day period between the May 20 primaries and the RBC meeting could produce a chaotic stretch where Obama claims to be the party nominee while Clinton argues otherwise.
Already, the two campaigns are gearing up for the battle.
"With the Clinton path to the nomination getting even narrower, we expect new and wildly creative scenarios to emerge in the coming days," wrote Plouffe in his memo. "While those scenarios may be entertaining, they are not legitimate and will not be considered legitimate by this campaign or its millions of supporters, volunteers, and donors."
"You can declare mission accomplished but that doesn't mean that the mission has actually been accomplished," Wolfson said.

Avi Zenilman contributed to this report

NES (Network of Ethiopian Scholars) and its delusional "Ideas for ending endemic governance crisis in Ethiopia"

2008-04-02T03:10:00.000-07:00

Adal Isaw
March 26, 2008
adalisaw@yahoo.com
In what is utter effrontery to academicians of the world, few realistically challenged asinine Ethiopians are calling themselves the Network of Ethiopian Scholars, to knowingly or unknowingly engage in the art of mass deception and disinformation. On November 2, 2005, NES naively called upon the people of Ethiopia and the world, to unite and topple one of the progressive government in Africa, claiming that, Ethiopia is under sadistic and fascist rule.

On May 22, 2006, the jubilantly excited NES broke the news that, "... a historic meeting convened, by the Coalition for Unity and Democracy Party (CUDP), the Ethiopian People's Patriotic Front (EPPF), the Ogaden National Liberation Front (ONLF), the Oromo Liberation Front (OLF), the Sidama Liberation Front (SLF) and the United Ethiopian Democratic Forces (UEDF), at Utrecht in Netherlands," creating AFD-the step child of a megalomania from Eritrea.

Wounded but not dead, and while debunked for lack of academic sophistication; on March 20, 2008, NES still managed to lift up the heavy brush of deception to denigrate and paint Ethiopia as the land of "endemic governance crisis." The brush stroke from left to right, up and down zigzagging in intervals, painting the feeblest possible images, in an article titled "Ideas for ending endemic governance crisis in Ethiopia."
One needs not to read the article for only part of the title "endemic governance crisis" tells more than what the gist of the presupposition of the article in its totality can ever confess. Meanwhile, and mere academic exercise aside, there is always the need to define key terms of a presupposition if indeed the whole point of an academic argument is to produce a convert out of an Ethiopian reader who may have a stake in what is being argued.

NGOs, the so-called Western nations, opposition groups from the criminal element to the academically dishonest, and the very naive and vocal Ethiopian Diaspora have been using "bad governance," as point of argument against EPRDF almost to the point of making these two words of "bad governance" the cliché of the 21st century. And yet, none of these elements of the opposition, as a matter of fact has made the case that " bad governance" let alone "endemic" one is pervading Ethiopia as NES is claiming.

Endemic is a caustic word that speaks a volume whenever it is used in any order to describe that something extremely undesirable and potent is taking place. It is a word usually used to describe matters of health concern that may afflict a specific region and people, especially disease peculiar to the tropic. In this case, NES is using the word endemic to describe the lack of "good governance" in Ethiopia and have no clue as to how the word is unfitting to describe such a phenomenon.

The state of "good governance" or lack there of cannot be endemic by its very nature. In fact, it’s just the opposite. Good governance may afflict as many regions as bad governance or vice versa, and by deduction, it is indeed pandemic and cannot be attributed as a peculiar enigmatic sign to explain the state of poverty and hunger in the land of Ethiopia. If you doubt my assertion, just read the following evidence about the richest country of the world for a change, and debunk my surmise if you can.

On October 12, 2005, Oprah Winfery had a show unlike any other show she had had in the past. The show featured Anderson Cooper, the host of 360 on CNN and others to talk about destitution, and see with a naked eye the sad-ridden faces of the 43 million Americans that live below the poverty line. Video footage of poverty-stricken Americans disenchanted the audience and also the millions of viewers who were glued to the tube as usual.

It was breathtakingly unbelievable to see the graphic face of destitution and poverty in America-the worlds’ richest country. From that day on, it became apparent to many Americans that, poverty is neither an endemic state of affairs necessarily induced by speculated lack of "good governance" nor it is the sole attribute of all poor and underdeveloped nations of the world, as NES is idiotically suggesting. So, what is the fuss about this recent article by NES? If any, NES is merely engaging itself as usual in what Mathza (one of my favorite writers who also has shared the same story about Oprah show to her readers) calls, "...an endless variety of devious means of discrediting and demonizing the EPRDF."

The word " governance" has popped out of developmental literature to find itself being used by sectarian groups to bring about their interest to the forefront. Succinctly put, "governance" is defined as the process of decision-making and the process by which decisions are implemented. The whole process is influenced by formal and informal actors. The government is the formal actor and the list of informal actors can be very long to include political and economic Mafias. As you have noticed in our country recently, the economic Mafias may include those "entrepreneurs" who jacked up the price of salt 900% overnight.

The economic Mafias may also venture to ransack the national treasury of Ethiopia, and in no way are attributable only to poor countries who are inured of being condemned for having " bad governance" as NES is suggesting. In fact, responding to the recent gold scandal of Ethiopia, NES idiotically asked the following questions, stretching the incident to mean something that have been caused by the New Federal Democratic Republic System of Ethiopia.

Reaching to the epic of stupidity, NES asked, "What does this fraud show? What is the relationship between the prevailing ethnic governance and such grand theft committed against the nation? Is this colossal theft related to ethnic de-valorization of Ethiopianess and Ethiopian patriotic belonging where those who steal prefer to privilege their private pockets to the decent matter of allegiance to the national well being? How can they imagine they can rob the national treasury for so long undetected, unless they have powerful official and intelligence people backing them? Where did the real gold go? These are indeed trying questions at trying times where this unfortunate nation seems to continue to lurch from one disastrous episode to another? How much has ethnic politics to do with this colossal treachery against the nation?"

How is what it means to be an Ethiopian has got to do with those who stole gold from the national treasury? Is NES about to tell us that some within us-Ethiopians ,including King Haile Selassie and Mengistu Hailemariam, have never been implicated stealing from the national treasury? Is Federalism the culprit in this scandal as NES is suggesting? Oh my! I guess, only the feeblest minds among us Ethiopians render to vitriolic criticism such as this one to consequent havoc and division among people who are otherwise united under one guiding principle-the equality of all peoples of Ethiopia unlike any other time in their history under the supreme law of the land that we often call the constitution. NES, get used to it! Your dog didn’t eat your home work.

It’s baffling that NES is equating the idea of Ethiopiawinet with the recent gold scandal. No Ethiopian needs a lecture on the idea of Ethiopiawinet from anybody including NES in such platitudes and nonsensical manner. If there is a perceived degree of difference about how one feels Ethiopiyawe, it arises from a reason more complex than the gold scandal that NES is eager to equate with. No matter how, NES will never ever rightfully claim to be more of an Ethiopian than any Ethiopiawee since the mechanism to weigh the strength of a conviction of such an idea or lack there of is non existent.

The whole point is that, governance is influenced by economic Mafias of the kinds that have been involved in the recent gold scandal, and to a greater extent, it’s attributed to the culture of greed that a capitalist system brings forth. If EPRDF is influenced to "govern" and acts as the Communist Party of China and executes all those who stole gold from the treasury, I suppose NES would be complaining about cruel, unnecessary, and inhuman punishment. In any case, NGOs of different breed, the international media, both print and TV, inter non-governmental and governmental organizations, treaties, trade laws and agreements, and multi national organizations are some of the actors from the many to impact the nature of "governance" in any type of government.

It is thus very deceptive of NES to imply that, the nature of "governance" is single- handedly influenced by a government. In fact, to a lesser or greater extent, even the behavior of NES as instigator of instability and disorder by having an affiliation with known terrorist organization have an impact on the nature of "governance" in Ethiopia. If NES is to behave in a civil manner and refrains from disseminating lies after lies, it’s very likely that our government would have markedly different mode of "governance" from spending more time on issues of political and economic detractors to spending time developing Ethiopia in full gear.
For some, including NES, EPRDF is the quintessential example of a government that went awry because of how it makes decisions and the way how it carries the decisions for implementation. But, for many Ethiopians who are cognizant of the context under which EPRDF is governing Ethiopia, EPRDF is one of the government that should have received the greatest commendation possible for good governance. It is very apparent that, NES stands to contend this bold assertion by giving us all of the reasons that it has forwarded on March 20, 2008, till I debunk all of the criticisms one criticism at a time.

"Unscrupulous syndicate of foreign and local business" are using Ethiopia’s land to grow "water thirsty rose for cheap export" thereby exposing our people to a protracted "food shortage," reads the introductory criticism of NES. Two untenable evidences are forwarded in support of NES assertions that, how rose production is bad for Ethiopia. The first one is, the fact that nine million people are waiting for food aid, and the second one, the fact that Portugal and Spain have ceased to produce rose, believing that it’s a detrimental venture. The allusion for the latter evidence is that, the Western developed world has abandoned rose production for reasons that NES is claiming about land usage in Ethiopia.

Contrary to NES claim, the Western developed states, particularly the European ones, did not abandon rose production by choice, and particularly not because of the reasons that NES is asserting. Rather, they were simply forced out by competition. In the 1960s and 70s, the Netherlands rose to a domineering stance in the world of cut flowers, but more specifically, roses, and its European developed states were eventually eliminated as competitors in rose production and were transformed into importers of roses. Today, Holland grows one out of every five commercially grown roses. And, for having done that, Holland has yet to create poverty-stricken citizens as NES is eager to point. The facts are not simply there to support that the nine million people in Ethiopia are waiting for " food hand outs" as a result of rose production.

The market for flower cuts, especially of roses has been expanding vastly to Asia, Africa, and south America. The list of countries includes but is not limited to Thailand, Malaysia, Zambia, Tanzania, Mauritius, Colombia, Ecuador, and Peru. For the Third World, roses have been treated by international market analysts and development experts as the "miracle crop" earning up to five times per acre what fruit crops bring in. So, what is the fuss about rose production, if the government of Ethiopia is avoiding banned and unregistered pesticides to avoid risks in health hazard and contamination of the soil? What is the fuss of rose production if the government is making sure that the working force is fit with protective gears even when registered and relatively safer pesticides are applied? What is the fuss about rose production if recycled water is used to harvest them? NES is simply out of gas and can only split hair in matters that have little bearing if any to the over all question of economic development.

By the way, weren’t you scholars supposed to premise your conclusion in solid evidence and trends of data that support your claim? Have you asked yourself how much of Ethiopia’s land is being used for horticulture vis a vi’s food production? How much of water? Are the nine million people waiting for "food hand out" the consequent of rose production? Is hunger the consequent of " bad governance" handing land to "unscrupulous syndicate of foreign and local business," to grow "water thirsty rose for cheap export," thereby exposing our people to a protracted "food shortage" as you are dishonestly suggesting? The answer is no, and here is the reason why.

As I have indicated earlier, good or bad governance is the product of two actors, and government of any kind is not going to be able to make decisions and carry out the decisions for implementation single handedly. Thus, the fact that we have "scrupulous" or "unscrupulous" foreign investors in Ethiopia indicates that, the blame, if there is any, should be attributed to the informal actors. EPRDF is not a mind reader and thus cannot sift the crook and the dishonest, from the honest ones, just by how they sign their lease agreements.

It’s so perplexing why NES is so craven to mention WTO, World Bank, and another international financial institutions, and the existence of an asymmetric political and economic relationship with the so-called Western world. NES is aware of the fact that, Ethiopia is compelled to open up its market and business ventures to foreign investors if it wants to do business with the Big Boys. Market liberalization is what has been required of Ethiopia for some time now, and the Ethiopian government is being pressured day in and day out to open up even those aspects of the economy that would put our country in harms way. In any case, the whole point here is that, poverty or hunger which NES loves to politicize for political expediency, is the function of asymmetric international economic and political relationship that has pervaded the world especially after WWII.

It won’t be surprising if NES is to equate the creation of Food and Agriculture Organization (FAO) of the United Nations (UN) with hunger in Ethiopia and the so-called Third World. But, the fact is, FAO of the UN was created, after hunger became the major concern of the United States and its European allies that had incurred a good deal of damage to their economies during the war. Countries in the South were relatively food self-sufficient before they were colonized by the west. Colonization or interactions with industrialized nations via trade, aid, and investment in least developed countries by Western banks and industries" immiserized" local economies. Those developing nations that overcame poverty and hunger, such as South Korea and Taiwan, were given huge amounts of aid because they were of strategic interest to the Western powers.
David N. Balaam & Michael Veseth

Introduction to International Political Economy

(New Jersey: Prentice-Hall. In., 1996). p. 386-387.
Poverty or Hunger, then, is not endemic to Ethiopia as NES is suggesting, but is a consequent of the asymmetric relationship that Ethiopia is compelled to have with the Big Boy of the so-called Western nations.

The implications of having liberal capitalist market system are many, and for one, it always creates great disparities of wealth and poverty. EPRDF is very cognizant of this fact and acts to restrain the disparities from going over board. The fact that land is apportioned for use via lease system is one good example that shows how EPRDF is putting the cork, to restrain the political and economic control that few may end up having if Ethiopia were to sell its land to Archer Daniel Midland company-a capitalist venture that is claiming of feeding the world. NES has to come out and propose an economic system other than the restrained capitalist system that we have in Ethiopia, and show us exactly how the disparities in wealth and power are going to be avoided. Our stance is that, even in restrained capitalist system, disparities are inevitable but restraining them is possible. NES, are you pondering on shooting your arm with the dose of "good, old, true socialist system?"

Food problems; gold scandal; dispirited sense of self; political and economic power disparities, and all of the complaints, as far as NES is concerned are the creations of "ethnic framed" governance. "Ethnic framed" is a reference given to Kilils that EPRDF has arranged as political units, to fairly and squarely distribute political rights, economic interests, and social benefits among the many people of Ethiopia.

Kilil is one of the issue that can easily be demagoged to mean the dismembering of Ethiopia into ethnic miniature states and anything and everything bad as NES is claiming. Those who oppose Kilil would not badge to claim a patriotic upper hand over those who advocate for it, exactly as NES is hail bent doing. Nonetheless, the principle that should guide our discourse on Kilil has to be the following: There should always be a contest in choosing the way how we live, but never should there be a contest with each other claiming to be more of an Ethiopian than those who stand to challenge the political living arrangement that we’re espousing for.

Neither the living arrangement nor the contest to choose one arrangement from another is immutable. Keep in mind that the fourteen provinces that made up the political unit arrangement of Ethiopia were never meant to stand still for ever. The same is true about Kili; it’s just another changeable political living arrangement being used for now to fairly and squarely distribute political rights, economic interests, and social benefits among the many people of Ethiopia.

Those who are standing to lose from such a political living arrangement in which power, privilege, duties, and rights are distributed are arguing in essence for immutable order of things. The traditional and historical edifice of Ethiopia stood on the premise of royal and aristocratic privileges, and this coercive edifice was imposed on fourteen political provinces. The edifice also was justified through ecclesiastical authority in order to shore and give it the appearance of immutability. Those who dare to challenge the royal and aristocratic living arrangements within the fourteen provinces of Ethiopia were dealt mercilessly. The continuing coercive living arrangement under royal and aristocratic administration brew local resistance and nationalist movements in many parts of the fourteen provinces of Ethiopia paving the path for EPRDF.

Well beyond the histrionics, rhetoric, and the dog eat my home work complaint of NES, Kilil is a political choice that resulted from decades of an Ethiopian struggle for justice, equality, and the right to self-govern oneself locally. It’s a political living arrangement representing the pacts and agreements that the EPRDF made with the peoples of Ethiopia as stipulated in the Constitution, emancipating and empowering the many people of Ethiopia from imposing and oppressing monolithic central government.1 NES, get used to the New Ethiopia, and stop the dereliction of your academic duty.

The Impact of High Oil Prices on African Economies

2008-04-01T05:46:00.000-07:00

Hafedh Bouakez
On the one hand the high price of oil is a unique opportunity for African oil producers to use the windfall gains to speed up their development. On the other hand, it is having adverse effects on net-oil importing countries, in particular those which cannot access international capital markets to smooth out the shock. We construct a dynamic stochastic general equilibrium model, which is tailored to reflect the characteristics of African economies, to quantify the effect of the increase in the price of oil on the main macro economic aggregates. The model is general enough that it imbeds both oil producing and oil importing countries. Our results indicate that a doubling of the price of oil on world markets with complete pass through to oil consumers would lead to a 6 per cent contraction of the median net-oil importing African country in the first year. If that country were to adopt a no-pass through strategy, output would not be significantly affected but its budget deficit would increase by 6 per cent. As for the median net oil exporting country, a doubling in the price of oil would mean that its gross domestic product would increase by 4 percent under managed-float and by 9 percent under a fixed exchange rate regime. However, inflation would increase by a much greater magnitude under managed than a fixed exchange rate regime in a median net oil exporting country.
While a barrel of crude oil was trading between $18 and $23 in the 1990s it crossed the $40 mark in 2004 and traded at around $60 from 2005. During the summer and fall of 2007, the price of one barrel of crude oil jumped above the $70 mark and even reached $80. Although, in real terms, the price of oil is still lower than in the late 1970s and early 1980s, the recent upsurge can have dramatic consequences on oil-importing countries. The impact of high oil prices is likely to be even more severe in countries that are overly dependent on oil and/or have limited access to international capital markets. This description characterizes many African economies. Net-oil importing countries have explored a number of policy options to cushion their economies from the adverse impact of the high price of oil. In 2006 the African Development Bank (AFDB) implemented a survey to investigate the extent to which governments of its Regional Member Countries (RMCs) have intervened on the retail market for fuel to limit the pass-through of international oil prices. Out of the 24 RMCs on which we have data, 20 had legislation in place to control the retail price of gasoline and only 4 had full pass-through. As a result, while the price of oil had nearly doubled between 2000 and 2005, domestic prices have increased at a much slower pace. For example, the price of regular gas increased by 65 percent in Benin, 76 percent in Mali and 77 per cent in Mauritius. Interestingly, the retail price of price was even inversely correlated with the world price of crude oil for some period (e.g. Mauritius). Moreover, the survey indicates that governments subsidize, or limit the pass through of, kerosene more than other types of fuel on the grounds that it is consumed by the poor.
Further evidence of government intervention in the fuel market is provided by a 2006 World Bank survey conducted in 36 developing countries. 14 were found to have suspended market based pricing to avoid full pass through of the world price of oil to domestic customers (ESMAP, 2006). In addition, 12 others were already controlling fuel prices which meant that they were pricing fuel below the true international market equivalent. More recently, Baig et. al. (2007) find that only half of 44 developing and emerging market countries have fully passed-through the increase in international fuel prices to consumers between 2003 and 2006. As for oil-exporting countries, they stand to benefit from the significant influx of foreign revenue which they could harness for their development. They are challenged to manage the oil windfalls for the benefit of the whole population, as well as future generations, and cushion their economies against any Dutch disease. However, the benefits of the high price of oil are not evenly spread across Africa. The 5 top oil-producing countries (Nigeria, Algeria, Libya, Angola and Egypt) account for more than 80 per cent of the continent’s production. At approximately $60 dollars per barrel of oil, the average present value of oil reserves is $33,000 for each resident of an oil-producing African country. Oil-producing countries with small population, which in addition are currently quite poor, stand to benefit substantially on a per capita basis. While oil exporting countries obviously benefit from high oil prices, economies that are heavily reliant on oil exports can become vulnerable to the Dutch disease. Again, this is the case of most African oil-exporting countries.
While there is a large macroeconomic effects of oil-price shocks, most are based on vector auto regression (VAR) models (see for example Hamilton (1996) and Bernanke, Gertler and Watson (1997)). Although these models are useful to characterize the statistical relationships between economic variables and to establish relevant stylized facts, they lack economic content and do not reveal mechanisms through which shocks propagate. In addition, the reduced-form nature of VAR models renders them subject to the Lucas critique. To the best of our knowledge, only a handful of studies analyze the effects of oil-price shocks within a dynamic stochastic general equilibrium (DSGE) framework. Notable examples are Rotemberg and Woodford (1996), Backus and Crucini (2000), Leduc and Sill (2004), and Medina and Soto (2005). Moreover, none of these earlier papers is concerned with effects of oil prices or is specific to the context of African economies.
This paper departs from the existing literature by using a DSGE model to study the quantitative effects of oil-price shocks on oil-importing and oil-exporting African economies. Our model belongs to the class of new open-economy macroeconomic models, which have become the main tool used in modern international macroeconomics. The model developed in this paper is more general than these earlier ones and is better suited for the African economies. Our model is one of a small open economy that shares some features with the models developed by Kollmann (2001), Bergin (2003), and Bouakez and Rebei (2005).
Our results indicate that a doubling in the world price of oil can lead to an important loss in output and consumption and to higher inflation in oil-importing countries, especially if these countries operate under a fixed exchange rate regime. The adverse effect on output, however, can be mitigated through government intervention or through foreign aid. More specifically, our results indicate that a doubling of the price of oil with complete pass through would lead to a 6 per cent contraction of the median net-oil importing African country in the first year. If that country were to adopt a no-pass through strategy, output would not be significantly affected but its budget deficit would increase by 6 per cent. As for the median net oil exporting country, a doubling in the price of oil would mean that its gross domestic product would increase by 4 percent under managed-float and by 9 percent under a fixed exchange rate regime. However, under inflation would increase by a much greater magnitude under managed than a fixed exchange rate regime in a median net oil exporting country.
Government intervention limits the degree of pass-through from the world price of oil, which shields the economy from higher input costs. To the extent that the government relies mostly on public debt to finance its expenditures, this policy will translate into a higher budget deficit and a larger consumption loss. As for foreign aid, the model predicts that the amounts needed to offset the output loss associated with higher oil prices are fairly small. In oil-exporting countries, a doubling in the world price of oil generates a sizable increase in output and consumption. The effect on inflation depends on which exchange rate regime is in effect. The expansionary effects of oil-price shocks are accompanied by a sharp appreciation of the real exchange rate, which can be harmful if the economy is heavily concentrated in a few industries. The remainder of the paper is structured as follows. Section 2 describes the model. Section 3 describes the main results regarding the effects of an oil-price shock. Section 4 discusses the policy implications of these results.
There are few studies that analyze the effects of oil-price shocks for African countries. Ayadi, Chatterjee and Obi (2000) study the effects of oil production shocks in Nigeria. A standard Vector Auto-Regression (VAR) process including oil production, oil exports, the real exchange rate, money supply, net foreign assets, interest rate, inflation, and output is estimated over the 1975-1992 period. Empirically, the response of output is positive after a positive oil production shock. Moreover, the impact response of output is less than one fifth of that of oil production, but the response of output after a year is slightly larger than that of oil production. The response of inflation is negative after a positive oil production shock. The impact response of inflation is negligible relative to that of oil production, but the response of inflation after a year is more than two times larger than that of oil production. The response of the real exchange rate is generally positive after a positive oil production shock, indicating a real depreciation of the Naira. The impact response of the real exchange rate is negligible relative to that of oil production, but the response of the real exchange rate after a year is around two times larger than that of oil production. To the extent that an oil price increase leads to an oil production increase, the responses suggest that output increases, inflation decreases, and the national currency depreciates following a positive oil-price shock.
Ayadi (2005) uses a standard VAR process to analyze directly the effects of oil-price shocks for Nigeria over the 1980-2004 period. This VAR process includes the same set of variables as in Ayadi, Chatterjee and Obi (2000), except that the oil production variable is replaced by oil prices. Unfortunately, the responses of the macroeconomic variables to an oil-price shock are not reported. Nevertheless, it is likely that the responses of output, inflation, and the real exchange rate are small following an oil price shock. This can be deduced from the small contributions of the oil price shock to the variance decompositions of output, inflation, and the real exchange rate. More precisely, the contributions of the oil price shock to the variance of output are 1 percent at impact and about 7 percent after a year. The contributions of the oil price shock to the variance of inflation are less than 1 percent at impact and after a year. The contributions of the oil price shock to the variance of the real exchange rate are 0 percent at impact and 5 percent after a year.
In comparison, the contributions of the oil-price shock to the variance of oil prices are 100 percent at impact and about 97 percent after a year.
Finally, Semboja (1994) studies the effects of oil price changes for Kenya, which is a net importer of oil. For this purpose, he calibrates a static computable general equilibrium model to obtain the impact responses, rather than estimating a VAR process to generate the dynamic responses. The impact responses suggest that an increase in oil prices lead to an increase of the trade balance, a decrease of output and of the price index, and a deterioration of the terms of trade.
More recently, international financial institutions and development banks have produced estimates of the impact of high oil prices on the world and regional economies. IMF estimates indicate that highly-indebted oil-intensive and fragile sub-Saharan African countries would suffer the most from higher oil prices. According to its estimates, they would lose more than 3 percent of their GDP following a $5 increase in the price of crude oil (International Energy Agency, 2004).* The World Bank, using the MULTIMOD model, estimates that a $10 increase in the price of oil, from a baseline of $23/bbl, would mean that net-oil importing countries with per capita income below US$ 300 for 1999-2001 would lose 1.47 percent of their GDP. Some of the lowest income countries would be even worse off losing 4 percent of their GDP (ESMAP, 2005 and UNDP/ESMAP, 2005). Were oil prices to increase by US$20 then the effect on GDP would be doubled.
These estimates are however subject to a number of limitations. The World Bank estimate is based on the ratio of the net oil and oil products imports to GDP assuming there is a zero price elasticity of demand for oil and oil products. Under this assumption, following a rise in the oil price, GDP changes by as much as the change in the value of net imports. This linear relation is simple but, as recognized by the authors themselves, is limited (UNDP/ESMAP, 2005). First, it assumes no microeconomic adjustments to the oil shocks, and that the response is entirely by a reduction in oil absorption. Second, economies gradually adjust to large changes and this can offset some of the severity of the initial oil shock.
A few papers have explored the distributional impact of an increase in the price of oil. Nicholson et al. (2003) find that a 100 percent increase of oil prices lead to 2 percent increase of the average household’s expenditure in Mozambique. Coady and Newhouse (2005) using data from Ghana
The countries which fall into this group is not given. report that a 20 percent increase in average oil prices leads to 3.4 percent fall in average real income. In Mali, Kpodar (2006) calculates that a 34 percent rise in the prices of all oil products lead reduces real income of the poorest by to 0.9 percent and the income of richest households by 1 percent.
The impact of a doubling in the world price of oil on main macroeconomic variables both in the case of a median oil-importing economy and a median oil-exporting economy. The variables of interest are output, consumption, inflation, the real exchange rate, the government budget deficit, and foreign debt. The simulations are performed both under a fixed exchange rate regime and a managed float. For each case, two different scenarios are considered: complete and zero pass-through. In all simulations, the oil-price shock is assumed to be persistent, with a first-order autocorrelation coefficient of 0.85, as estimated from the data. This assumption is consistent with the view that the expected durability of the high oil demand from East Asia (especially China) is sustaining the market expectations that oil prices will remain high
Median Oil-Importing Economy
This economy is calibrated such that oil imports represent roughly 13% of total imports and 5% of total GDP in the steady state. Simulation results for this case are shown in Tables 1 and 2. The main conclusions are the following:
• Under fixed exchange rates and complete pass-through, a doubling in the world price of oil leads to a decline in output and consumption, a slight increase in inflation, a small appreciation of the real exchange rate, and moderate changes in public and foreign borrowing. The output loss is about 6 percent during the first year, while the cumulative loss is around 23.5 percent during the five years following the shock. For consumption, the corresponding numbers are 4.5 and 19 percent, approximately.
The drop in output and consumption is attributed to a combination of two effects of high oil prices: a direct income effect, through the resource constraint, and a direct effect on production, through higher costs of inputs. The former decreases consumption and increases labor supply. The latter decreases demand for non-oil inputs and, by extension, demand for labor and capital. The net effect on hours worked is ambiguous, but labor income and investment unambiguously fall (due to lower marginal productivity of labor and capital). The resulting reduction in households’ disposable income further decreases consumption and output.

Effects of a 100% increase in the price of oil
(Net-Oil Importing Country, Fixed Exchange Rate Regime)
Impact effect Cumulative effect
(1 year) (5 years)
Output
Complete pass-through -6% -24%
Zero pass-through -1% -5%
Consumption
Complete pass-through -5% -19%
Zero pass-through -6% -25%
Investment
Complete pass-through -11% -39%
Zero pass-through -7% -25%
Inflation
Complete pass-through 2% 1%
Zero pass-through -4% -4%
Real exchange rate
Complete pass-through -2% -7%
Zero pass-through 4% 22%
Budget deficit
Complete pass-through 4% 7%
Zero pass-through 31% 45%
Foreign debt
Complete pass-through -1% 2%
Zero pass-through 9% 11%
Note: Budget deficit in percentage of steady-state output.

The increase in inflation is due to the fact that the domestic price of oil enters the aggregate price index, and since there is complete pass-through, oil-price inflation contributes to core inflation. The higher inflation explains the appreciation of the real exchange rate (since the nominal exchange rate is fixed).
• Under zero pass-through, the increase in the price of oil still leads to a decline in output and consumption, but the magnitude of the effects differs significantly compared with the complete pass-through case. The decline in output during the first year is less than 1 percent and the cumulative loss during the five years following the shock is roughly 5 percent. Hence, by practicing LCP, the government shields the production sector of the economy, which minimizes the output loss. The cost of this intervention, however, is a dramatic deterioration of the budget deficit (31 percent during the first year and 45 percent after five years), and most importantly, a large decline in consumption, which drops by more than 6 percent during the first year and 25 percent after five years.
• Under zero pass-through, there is a decrease in inflation, which translates into a real exchange rate depreciation of roughly 4.3 percent in the first year and 22 percent after five years.

Effects of a 100% increase in the price of oil
(Net-Oil Importing Country, Managed Floating)
Impact effect Cumulative effect
(1 year) (5 years)
Output
Complete pass-through -6% -23%
Zero pass-through 2% -1%
Consumption
Complete pass-through -4% -18%
Zero pass-through -5% -25%
Investment
Complete pass-through -10% -38%
Zero pass-through -1% -21%
Inflation
Complete pass-through 5% 4%
Zero pass-through 4% 5%
Real exchange rate
Complete pass-through -1% -5%
Zero pass-through 9% 30%
Budget deficit
Complete pass-through 0% -1%
Zero pass-through 6% 20%
Foreign debt
Complete pass-through 1% 2%
Zero pass-through 16% 12%

Note: Budget deficit in percentage of steady-state output.

Under managed floating, the nominal exchange rate is, to a certain extent, free to adjust, thereby acting as a shock absorber. In principle, therefore, the adverse effects of high oil prices should be less severe compared to the case with fixed exchange rates. A comparison of Tables 1 and 2 confirms this intuition. Under complete pass-through, however, there are only minor differences in the response of output, consumption, inflation, and, to a lesser extent, foreign debt across the two regimes.** The gain from letting the nominal exchange rate float is much more apparent under zero pass-through. For example, output initially increases by almost 2 percent (as opposed to a decline of 1 percent) following the rise in the price of oil, and the cumulative loss after five years is barely over 1 percent (as opposed to a loss of 5 percent). This smaller output loss is due to the larger depreciation of the real exchange rate relative to the case with pegged nominal exchange rates. 4.2 Median Oil-Exporting Economy This economy is calibrated such that oil exports represent roughly 88% of total exports and 35% of total GDP in the steady state.

Effects of a 100% increase in the price of oil (Net-Oil Exporting Country, Fixed Exchange Rate Regime)

Impact effect Cumulative effect
(1 year) (5 years)
Output
Complete pass-through 9% 53%
Zero pass-through 10% 56%
Consumption
Complete pass-through 42% 152%
Zero pass-through 41% 149%
Investment
Complete pass-through 16% 62%
Zero pass-through 16% 62%
Inflation
Complete pass-through 9% 15%
Zero pass-through 6% 14%
Real exchange rate
Complete pass-through -9% -71%
Zero pass-through -7% -63%
Budget deficit
Complete pass-through -114% -147%
Zero pass-through -108% -139%
Foreign debt
Complete pass-through -33% -47%
Zero pass-through -30% -45%
Note: Budget deficit in percentage of steady-state output.

Under fixed exchange rates and complete pass-through, a doubling in the world price of oil leads to a 9 percent increase in output, a 42 percent increase in consumption, a 9 percent increase in inflation, a 9 percent real appreciation, a 114 percent reduction in the budget deficit, and a 33 percent reduction in foreign debt during the first year. The magnitudes of the cumulative effects after five years indicate that the adjustment of output, the real exchange rate, and foreign debt is non monotonic. For example, the model predicts that the response of output to the 100 percent increase in the price of oil is hump-shaped, attaining its peak of 16 percent during the third year after the shock.
• The increase in the price of oil generates a positive income effect, via the resource constraint, which increases consumption. This rise in consumption translates into higher demand for the final good, which more than offsets the negative effect of the higher price of oil. As a result, the demand for oil and non-oil inputs increases (due to their complementarily), thereby raising the demand for labor and capital. The resulting increase in labor demand and investment further boosts the demand for the final good and, therefore, output.
Under zero pass-through, there is a slightly larger increase in output, a lower inflation, and a smaller appreciation of the real exchange rate compared to the case with complete passthrough. This “gain”, however, comes at the expense of a (marginally) smaller increase in consumption and a smaller improvement in the budget deficit.
Under managed floating, the output and consumption gains induced by the increase in the price of oil are smaller than under fixed exchange rates. This result is mainly due to the larger appreciation of the real exchange rate under the former regime. The smaller increase in consumption implies that the budget deficit narrows less than under fixed exchange rates.
• Under managed floating, the effects of an increase in the price of oil under complete and zero pass-through are strikingly similar.
The above analysis suggests that LCP can cushion the economy from the adverse effects of oil price shocks in oil-importing countries. This policy, however, amplifies the consumption loss and aggravates the government’s budget deficit. Hence, the answer to the question of whether a government should intervene or not depends on its implicit objective function. To the extent that the government is concerned with stabilizing output, choosing LCP proves to be the optimal policy. Alternatively, if the government is a benevolent social planner, then laisser-faire is likely to be the welfare-maximizing policy. For oil-exporting countries, government intervention does not seem to affect in a substantive way the outcome of the economy, especially in the case of a managed floating. This observation implies that both intervention and laisser-faire could be acceptable policy choices in those countries.
Can foreign aid help African oil-importing countries cope with high oil prices? Are the required amounts prohibitive? Table 5 shows the permanent level of overseas development assistance (in percentage of steady-state output) that is required to completely offset the initial output loss associated with a persistent 100 percent increase in the price of oil. The table shows that the largest amount of foreign aid needed is less than 2 percent of steady-state output. This amount is clearly non-prohibitive (foreign aid in a number of African countries represents more than 5 percent of GDP), implying that there is scope for international-community actions to help debt burdened African economies mitigate the adverse effects of high oil prices

ODA to offset Output Loss in the First Year
(% of Steady-State Output)

Fixed exchange rate regime Managed Floating
Complete pass-through 1.60% 1.98%
Zero pass-through 0.23%
Note: ODA: Overseas Development Assistance.
High oil prices can have very harmful effects on African oil-importing countries, especially those with a high debt-burden and those which have limited access to international capital markets.

They lead to a decrease in output and consumption, and to a worsening of the net foreign asset position. For the median oil-importing country, the five-year cumulative output loss resulting from a doubling in the price of oil can be as large as 23 percent under a fixed exchange rate regime. This recessionary effect, however, can be substantially mitigated through LCP or through foreign aid. In this regard, the model can be used to determine the optimal degree of intervention by the government given its objective function.
For the median oil-exporting country, the five-year cumulative increase in output associated with a doubling in the price of oil exceeds 70 percent, regardless of the exchange rate regime under which the country operates. This manna, however, is accompanied by a sharp appreciation of the real exchange rate, which may hinder the competitiveness of the country. It is therefore important that oil-export revenues be spent in a way that favors future growth, and not in wasteful or badly planned projects.
It should be emphasized, however, that while the analysis above focuses on “median” countries, there is a great deal of heterogeneity within the groups of oil-importing countries and oil exporting countries. This means that the effects of oil-price shocks can differ dramatically from one country to the other. As stated above, however, the proposed model can be configured to represent any of these countries.
An important question that the model does not address is the effect of high oil prices on poverty, which is a crucial dimension of the African context. The model could be extended to capture this feature by allowing for heterogeneity across households and by assuming that some of them have liquidity constraints. The model can also be extended to include other types of shocks, such as productivity shocks, monetary-policy shocks, and world-interest-rate shocks. This would allow the model to answer a broader set of questions of relevance to policy makers.