Ethiopia: Trillion Birr Economy!

Confident Meles certain economy can continue to grow
Confident Meles certain economy can continue to grow

Humbled by an electoral victory beyond his imagination, Prime Minister Meles Zenawi had pledged to revise the budget proposed during the concluding Ethiopian fiscal year to come up with a big surprise that his administration brought to the public in the form of the Growth and Transformation Plan.

Projected to have a cost of up to one trillion Birr, a projection still on the drawing board, the administration seeks to either register an annual growth rate of 11pc or, if possible, double the current growth.

It would want to meet all the targets listed in the Millennium Development Goals (MDGs); achieve a per capita gross domestic product (GDP) of close to 700 dollars; double agricultural productivity while enhancing the contribution of the manufacturing sector to the GDP; and exponentially expand public spending on infrastructure.

Although sceptics call this wishful thinking, Meles appears to take solace in his administration’s legacy of managing the economy over the past five years, under the Plan for Accelerated and Sustained Development to End Poverty (PASDEP).

Many of the issues addressed during last week’s regular press conference by the Prime Minister were on his administration’s latest proposition to transform the economy, while maintaining its growth. The plan, comprising base and high-case scenarios, is very ambitious, in his own admission.

Nonetheless, he does not seem satisfied with the plan tabled for discussion, implying during the press conference that there is room for more had the government be a little more ambitious.

“If we were to be ambitious, we could stretch it even further,” Meles told the media on Wednesday, August 11, 2010, which TAMRAT G. GIORGIS, FORTUNE STAFF WRITER, attended. “If five years ago, a high-case scenario of growth rate of 10pc was considered to be close to madness, practice has shown us and our partners that it is possible for the economy of Ethiopia to grow at an increased pace. We have to internalise that lesson and see what it means for future development plans.”

Confident in Legacy . . .

PM Meles Zenawi: We have the experience and the capability accumulated over the past seven years by maintaining growth at a minimum of 11.1pc. Doubling the GDP in the next five years would imply that certain sectors of the economy would need to be transformed. You cannot have growth without transformation of the type that we are having now. The logic of maintaining the efforts of the past seven years is very simple and very straightforward. We have to have an ambitious plan and we have to have a plan of economic growth and transformation because we cannot have one without the other at this stage of development.

While looking at it now, doubling the GDP in five years may be bordering on the insane. We did say the same thing about 10pc growth rates five years ago, and while maintaining the 11.1pc growth rate for another five years may be seen as wishful thinking, we did say that about a seven per cent growth rate five years ago.

There is no reason why we could not plan in an ambitious manner. The ambitious nature of the plan is predicated on the developments of the past seven years and the potential of the economy to do more in the coming five years.

Q. The next five-year plan, which contains some bold targets, is under discussion with the public. Given some of the underperformance seen, for example, in the housing project where the state should have constructed at least 400,000 houses but it ended up building half of the figure and again in the export sector, where it collected half of the 2.5 billion dollars it wanted to, do you think your administration will be able to realise some of the targets?

If you look at the PASDEP as a whole, it was based on two scenarios; the base-case scenario, which envisaged the seven per cent growth rate per annum, and high-case scenario which envisaged 10pc growth rate per year. The outcome is bigger and better than the base-case scenario. When you look at the plan as a whole, we have over performed.

That does not mean every project and every plan has been fulfilled. The housing project in particular has clearly underperformed but there were some significant political interruptions, related to election of 2005 and post election situation, in the process of building houses in Addis Abeba.

In exports, the performance last year was very bad; there was no growth at all. In fact, there was a reduction in exports. The global environment can explain a large part of that, but not all of it. Nevertheless, our exports have been growing very well, for we have passed the two billion dollar mark this year.

Therefore, we think we can do better in the coming five years, based again on two scenarios. The base-case scenario would be to maintain the current rate of growth, which is, on average, slightly above 11pc. The high-case scenario would be to double the GDP in five years’ time. This is indeed an extremely ambitious plan but at least, as far as the base-case scenario is concerned, we have already achieved as much.

Q. You may personally want to leave a legacy after five years with an economy that is completely transformed structurally. I believe that is why you call it a transformation plan. How do you think you will achieve that in the absence of political and social transformation? I do not know of any plan as such presented to the public in terms of political and social transformation.

The five-year plan is much bigger than any individual or that individual’s legacy. It is about maintaining and, if possible, enhancing the achievements of the past seven years. If that has some positive connotations to a legacy of a party or an individual, so be it, but it is a by-product rather than the main focus.

Our current plan will have political and social aspects. For example, in terms of social development, we hope to achieve all the MDGs. We hope to expand social insurance, safety net, and social security programmes to cover the private sector in various services, including health. We hope to continue to consolidate the institutions of democratic governance in the country and continue to build on the national consensus around the Ethiopian renaissance that we seem to have made progress on. We will have a comprehensive plan, which covers both political and social plans.

Q. You said that the five-year transformation plan is based on the legacy of the past. PASDEP was projected to have an inflation rate of a single digit, which is about seven per cent for the five years. When you look at the performance, or the result, it was way beyond that; it was a double digit and the highest in the history of the country. The new plan is based on a projection of inflation on six per cent; if you were not able to achieve it in the past, why do you think that you will be able to achieve it in the future?

You are right; our plans are based on the past. We will try to do all the good things that happened in the past and learn from the failures in order to correct them. One of the failures of the past five years was the high inflation rate that we faced for most of this period. I think we have learned our lesson and I think we have the instruments, not just fiscal and monetary instruments, but also real economic instruments, including circumstances in our agricultural sector, to control inflation.

Identifying the sources of that pressure and fighting them before they emerge is going to be our approach. One key source has been the agricultural market; I think we are in a position to mitigate any inflationary pressure coming from that quarter. The other alternative source of inflation has been imported inflation; again, there are instruments that we have tried out in the past that I think will serve us well.

Q. Looking back on the last five years, inflation has been a scourge on the economy; your administration has successfully overcome that and still ensures growth. You have largely taken monetary instruments, rather than fiscal measures, such as restraining liquidity levels, by introducing a cap on lending  and increasing the legal reserve in the banks. Your administration has also adjusted interest rates on deposits to four per cent and there was also the depreciation of the Birr at about 30pc over a stretch of two years. Yes, this has all brought results, but the question is, at what cost?

I would not say that we used monetary instruments exclusively; fiscal instruments were also used. At one stage our deficit was less than one per cent and this was at a time when economies with more resources were managing budget deficits of 12pc of their GDP. We kept our deficit below one per cent at one stage and below two per cent consistently. Mind you, that is below the Maastricht criteria, which is seen to be very strict in allowing fiscal management with a budget deficit of not more than three per cent; none of the European countries, not even Germany, have managed that consistently.

We have been very strict and severe in our fiscal policy but none of these instruments, fiscal or monetary, alone would have been enough to bring down inflation quickly. We had to use both instruments at the same time. That is why I think we were able to bring down inflation to a manageable level so quickly.

The economy did grow significantly, about 10pc this year and a little over nine per cent the previous year. That is not as high as the growth we have had in the past but given the circumstances, I think it was quite adequate for our purpose. I do not think we have paid too much of a price by way of reduced growth in our economy.

Q. I am wondering about the projected cost of the transformation plan; I have not seen any cost projections.

The final cost projections have not been worked out because the plan is still work in progress. Not being the final plan, it is being discussed with stakeholders. It will continue to evolve but we will have some projections once it is completed. I am sure it will be available to everybody. It is huge. It is very big.

Q. A trillion dollars?

A trillion dollars is out of reach for Ethiopia. A total of one trillion Birr would not be out of reach.

Q. One of the things the five-year plan says is that Ethiopia’s ambition is to not depend on food aid at the end of that period, within five years. Ethiopia is still a country in which, if you combine the safety net and the emergency programmes, 13 million Ethiopians needed some form of foreign aid to survive last year. Bearing that in mind, do you think it is a realistic ambition to not need food aid at all within five years?

Social safety net programmes and food aid are not identical; they are not one and the same. There are countries, very rich countries, which have safety net programmes to provide food stamps and other assistance to people who need them. It is called a social security programme in those countries. That does not necessarily imply that you need food aid. You need food aid so long as you do not produce enough locally, or so long as you do not have adequate foreign exchange to buy it, if you do not produce it locally.

Currently, we are short in both ends. We have some foreign exchange reserves but we would rather use it for some other purpose. There are times when we have a surplus of some products but shortfalls of others. Our hope and expectation is that within the next five years we will produce enough not only to feed ourselves, but also to be able to export. That does not necessarily mean we will do away with the safety net programme or some sort of social security programme.

Being able to feed oneself as a country does not necessarily mean that every citizen in will be able to fend for himself. I do not think there is any country in the world where every citizen is able to fend for herself. No country, even the richest, has achieved that. That is why society has come up with the second best option, which is the social security programme.

We are too poor to afford it, even our safety net programme is financed from abroad. In the future that will stop; we will feed ourselves and manage our own forms of social security. I do not think that is impossible; I think it is quite achievable within the next five years.

Q. What about emergency relief? Are you also saying that could not possibly be a need for emergency relief within five years?

The emergency situation in Ethiopia has been less of an emergency than is normally the case. In Pakistan, there is unprecedented flooding, a once-in-a-century type of situation. These are real accidents. The type of emergency we in Ethiopia felt, was happening every other year or so. We should be able to manage that type of emergency but I am sure even the United States (US) would welcome at least symbolic assistance in instances when unheard-of types of calamities, such as the [hurricane] Katrina event, happen. Shall we call them normal emergencies; we should be able to manage those within five years.

When push comes to shove . . .

Q. There has been a declining cost of grain in the market over the last month or two. There is a fear that there may be a scenario such as in 2003 where, right before the famine, the price of corn plummeted and as a result farmers were not able to fetch a price that was worth even the sack. Do you have any plan for intervention? What sort of intervention do you hope to make, if you are at all prepared to do it? At what stage do you think it is worth intervening in the dynamics of the market?

This is something we are watching very carefully, which would in any case seem to suggest that inflation is unlikely to be the main problem now. If grain prices are declining right in the middle of summer, when they should be hitting the roof, it is to some extent a worrying sign. If grain prices were to go below a certain level, we would act and act most decisively. We will not allow the farmers of this country to go out of business; that is simply unthinkable. We will do everything it takes to stop grain prices from going down below a certain minimum benchmark.

Q. Can you tell me that benchmark?

We have not reached it yet and we would not want to jump the gun, as they say. We want to see how the harvest is going to turn out this year. If the harvest is such that there is a realistic risk of prices collapsing further then we will take steps to prevent it. We will fight inflation but we will fight grain prices collapsing, even more. If it means we have to choose between two evils, then the collapse of grain prices is the worst evil that can happen in this country. It will not be inflation.

I hope it will not happen, I hope we will not need to intervene, but if need be, we will set floor prices and if prices of grain go below those floor prices, we will buy up and store the food to beef up grain prices to such an extent that the farmers earn a decent living. Everything else will be secondary but I think it will not come to that. I think we will manage with single digit inflation without grain prices going through the floor.

Q. People in the business community are losing confidence, claiming that the current tax enforcement measures are a bit too harsh. They even say that you came close to apologising to the business community in the aftermath of the election results. Are there any other ways to regain the confidence of the business community?

I think we should enforce the tax laws of this country without having to detain people. That is the ideal situation and we need to move towards that and continue to engage the business community so that they pay their taxes on time and in full without us having recourse to the prisons of this country. Nobody benefits from detaining these businessmen, not the businessman and not the government.

However, the onus is on the private sector to pay their taxes on time and in full. We will continue to seek a more cordial way of enforcing the law. Thieves are harshly treated in this country, especially if they are of the usual type, unemployed and gangster-like poor thieves. I think all thieves should be treated equally, whether they are rich or not.

In the last analysis, those who do not pay taxes are effectively stealing money from the government and from the people. All crimes are better managed through education, not through detention, whether it is a thief of the ordinary type or a thief of the white-collar type. Education to enforce the law is always a more effective and a more humane means of managing them.

We will, however, reserve our right to detain people who have stolen money from the people by not paying their taxes on time.

Riding in rough terrain abroad . . .

Given the US government’s strong criticism over the May elections and your strong rejection of their criticism some fear that the relations [with the US] suffered setbacks; is that the case?

In the recent past, we have been going through rough stretches in our relations with the United States. I think that has now, by -and- large, come to an end.

There will always be disagreements on issues. There are issues about which the officials in the US feel strongly and differently. There are also issues about which we feel strongly and differently to them. We will agree to disagree on those we do not agree on and we agree to work together on issues of common interest. I think the rather difficult stretch we have had in the past six or seven months is by-and-large behind us now.

Q. During your recent meeting with Johnny Carson you allegedly made a remark that the only opposition you know of in Addis Abeba, is the US Embassy. If that is the case, do you not think this statement is a bit uncalled-for?

Our discussions with US officials are normally very candid on both sides but they are very private and, therefore, it would not be appropriate for me to comment on private discussions we have had with US officials.

Q. I have heard about your decision to close down the Ethiopian Embassy in Stockholm, Sweden. Can you explain why?

Ethiopian embassies outside of Africa are established primarily to promote economic development in the country. Each embassy will have to justify its existence on the basis of the quality and quantity of economic linkage between Ethiopia and that specific country. In the event where an embassy cannot justify its existence on that basis, we have to re-prioritise in order to reallocate our resources.

Our embassy in Sweden was not cost-effective. There is no development cooperation programme of any substance between us and Sweden; there is no major trade relationship; and no significant investment coming from Sweden to Ethiopia. The main purpose of the embassy was limited to giving visas to visitors and to Ethiopians in the Diaspora in the region. At the same time, we do not have an embassy in Brazil, a huge emerging country.

We are now reassessing our diplomatic presence globally, and the first to go was Sweden because it was not worthwhile for us to have an embassy there while we will try to continue to provide consular services from Stockholm.

Q. You are a co-chair of the United Nations Climate Change Panel and you are expected to secure at least 30 billion dollars as a start-up fund pledged by rich nations at the Copenhagen Summit. Do you think you can secure some portion of the money before the summit in Mexico?

The panel is not expected to secure anything. Rather, it is expected to come up with a proposal which may or may not be accepted by the parties in Cancun. The hopes and expectations are that the panel will come up with a proposal that would generate the 100 billion dollars per annum by 2010, of public and private resources for climate change financing. I am confident that the panel will come up with a reasonable plan to that effect.

What I cannot be sure of is whether that plan will be accepted or not. As long as the panel comes up with a reasonably good proposal, then I think it will have done its job well, whether it is accepted or not.

. . . and surfing in turbulent seas at home

Q. Since your last public appearance at Meskel Square, where you gave an unusually consolatory statement, people were expecting you to walk the talk but it has not been the case. We do not see any visible and credible move from your administration in terms of showing that you would like to work with the opposition in spite of the fact that the opposition is wiped out from Parliament. People were basically expecting you to do something like releasing Birtukan Mideksa or maybe shake hands with the opposition leaders or give some statement like you may consider administrative positions for opposition leaders in your new government. Nothing appears to come from your side. I am just wondering if you have anything in mind.

I think we have tried to implement everything that we offered as the EPRDF in the post-election period. The new Parliament is still not in place; once it is in place, we said that even the one opposition MP will be treated like he is supposed to with all the rights and obligations of a full opposition party in Parliament. We have tried to engage the opposition; I have talked to leaders of the opposition other than that of Medrek and the All Ethiopia something.

Those that are prepared to engage with us, I have already talked to; we have already discussed how we could develop the joint council that we had formed as a forum for debate and discussion of the future. We do not want to start the dialogue in a formal sense now because we want to give time to the others to see if they can join us. Other than that, we are working on this joint forum for the opposition parties to engage each other.

All the things that I said in developing the details and what I said in Meskel Square’s subsequent press conference are being implemented and will be implemented.

I am sure you remember me telling you that releasing Birtukan was not part of the package. It was not part of the package then, it is not part of the package now, and it will not be part of the package tomorrow. This is a purely legal issue and it is between her and the law. Nobody can come between the two; not the opposition parties, not our friends abroad.

Q. After the election victory, you mainly talked about the parties’ joint council as a discussion forum. How are you planning to involve the opposition if the biggest opposition (Medrek) is not part of the forum?

Whether a party is a member of the joint council or not, to me is not the main point. It is rather whether the party is interested in civilised dialogue or that the party wishes to remain in the wilderness.

If Medrek, for example, wants to join us in civilised dialogue, we can discuss how to accommodate them within the joint council or the modification of such a mechanism. So far, they do not appear to be interested. It would not be proper for us to try to force them into such dialogue. We will have to wait for them to change their minds and begin to believe in civilised dialogue before we can engage them. In the meantime, we will engage the others in that type of dialogue.

Q. I would like to know your understanding and interpretation of national consensus. It seems to me that there is a quite wide definition among different political actors in Ethiopia. What exactly constitutes this national consensus?

The national consensus is the one that has the broadest possible support of over 90pc, which happens to mean that this country needs a renaissance based on the concepts of democracy and developmentalism. I think that is a national consensus that was clearly manifested during the elections; we want to build on that.

Q. Right before the election, you were touring some parts of the country, particularly northern Shewa and Tigray, areas where you were talking to elders and the people. Was there any point or time when somebody said something to you that really unseated you from your beliefs? Something that really shocked you, to which you said, “I never knew that this happened in this country?”

I have not faced that circumstance; I have not been shocked out of my views by things that I heard from people across the country. If anything, I have come back from these visits with the conviction that we really do not have much time; that we really have to run in order to stand still.

People across the country are now beginning to see the light at the end of the tunnel, and they want it still closer to them. Patiently waiting for this light to arrive at their doorstep is not their preferred option. If anything, I came back from these visits determined to push further and faster along the same line.

Q. I would want you to share your outlook of politics of the future. Your generation of leaders will be retiring soon. In 10 to 15 years, all the leaders from all sides of the Ethiopian political spectrum since the student movement will basically be replaced by a new generation. How do you see politics 20 and 30 years from now? Would you agree if I were to have this view that politics will evolve into two different forces in the future? A liberal political party will emerge that will represent basically the private sector; and there will be one political party that will evolve with the ideological frame of a social democratic party. Do you see the EPRDF changing its colours to that, from the revolutionary democratic credentials it has now? Do you see the EPRDF becoming a social democratic party in the ways of, for instance, Sweden, sometime in the future?

Your projection of politics 20 and 30 years in the future is as good as any; I would not venture to do what you have done. I think your projection, to me, appears to be the most plausible both in terms of basic political divide and in terms of the possible evolution of the EPRDF.

TAMRAT G. GIORGIS

Fortune