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