Ethiopian Economy: Hailu Shawel, All Ethiopia Unity Party (AEUP)

Hailu Shawel
Hailu Shawel – All Ethiopia Unity Party (AEUP)

Q. To what extent should the state be involved in the economic management of the country?

We believe the private sector [is] the main vehicle for development. The government’s job is to enhance the environment for the private sector to invest in the country. The government has never [proved] to be efficient in economic management. If they could just make the macroeconomic [environment] more acceptable to both local and foreign investors, Ethiopia would have gone very far in the last 18 years.

But I think this government has a problem, the problem of its past, which they are unable to convert to the future. The past is a belief in socialist development, in revolutionary activities, tight control of everything that moves, especially the economy. That is what they are putting in practice.

Of course they have done certain things which surprise you, like privatisation of certain companies. But those companies, I think, they should have rehabilitated them before they sold them … at cheap prices. Usually when you sell something, you have to evaluate your company, bring it up to the standard, make it functional then sell it, and your return will be good. But that is not what has happened.

The state’s involvement is to encourage the investors to go to areas which the private sector cannot easily go. It means opening up roads, new land for agriculture, and training [professionals] for companies that come to invest in those areas.

Training is an area, I say again, where the government should be involved because we need technical knowhow and management knowhow; at both levels. This has been the weakness of the Ethiopian economy. So the government should tailor the education system to our stage of industrial and agricultural development instead of taking somebody else’s curriculum and just ploughing through it.

A big rehab system is required in land refurbishment, because our land has deteriorated significantly. We need a system where you can reap economic benefit and still rehabilitate the land, that is, afforestation by the private sector and fruit tree plantations. All you [have] to do is make capital available for five to six years and make sure people live from that so that after five years they can systematically turn that into capital which they can reinvest again in those areas.

In areas where there are farmers and in areas accessible to major cities, you should allow the private sector to go into afforestation. When you do this you preserve the water; you will have clean water that lasts longer.

In the industrial sector … we have a lot of iron ore, bauxite etc. All of this basic metal development potential which you need to [have] these metal related small-scale industries all over the country. But at the moment we are using imported peak iron to make reinforced concrete bars, which is too expensive. And the job creation factor of that is quite high. That is where the youth should go; that is where the future of Ethiopia lies.

Q. What are the areas the AEUP would totally leave for the private sector?

Small-scale industries which serve the consumer, government should get out of that. Number two, any kind of food distribution, government should get out of it. Retailing, they have already gotten out of it, but with some exceptions; we will make it complete, no retail. And the financial sector, the government should get out, sell its banks, because that is interference in the monetary system at the micro level. The only thing the government should involve in is at the macro level, setting the parameters to encourage investors and financial capital to come here. So, the AEUP will do that.

And we will not allow any political affiliation in any of these service or production companies, not only direct but indirect involvement, so that it is a free competition, not strained competition like now, whereby some get special considerations [and] others get treated like stepchildren. That is not going to be in our book when we take power. That is also the only way to get the trust of the investor, the one with the money.

So, I believe we will not be involved at all in the service [sector], in production, in industry … even in construction as government.

Q. Do you think the market will function properly?

What you do is you lay the ground[work] for smooth transition. For instance, take the construction sector. In the AEUP, we will assist the private Ethiopian contractors to grow much faster by the provision of capital as soft loans, by training engineers and technicians for that type of work, and by giving special consideration for tenders in government construction, so that they get priority.

When you do construction you should look at human resource development, not only at setting up a building, or a road, or a railway, whatever. You should concentrate on who is going to build this country; where are these people? So, the training aspect by involving in construction is quite significant. This is what the AEUP will be involved in.

Q. How do you intend to use fiscal and monetary policy instruments?

This is the government’s job, yes. But it has to be very carefully followed up. I will just pick a sample from today’s goings on. Government first just flooded the market; construction went on at very heightened pace and then there was inflation. So, to control inflation, what they did was the funniest thing I ever saw. They are the biggest inflators at the government, not the private banks. They told the private banks, “You can not lend anymore until I tell you.” Each one of these banks is so small, even if you add them together and flood the market with their money, it will not change the inflationary pressure in the market. Why I suspect they did this is that they want somebody to buy their treasury bills because they want to be the investors, the spenders of the money. So these banks, instead of keeping their money under their pillows, they would buy these treasury bills at very miniscule interest rates instead of pumping it into the private sector. So you are pumping private sector money into public sector investment. This is the reverse of what should be done, which means you are spending the money, but it is the government who is spending the money. A lacklustre economic approach in economic construction should be something any government should avoid.

Q. Do you agree that economic growth exists in Ethiopia?

There is growth, yes, but I believe all these figures being bandied about are unreal.

If you look at one northern region, the population has remained at the same level for 10 years. There is no big immigration anywhere, outmigration is not there. All these people are coming to Addis everyday. So when you juggle these figures, the devisor gets smaller, the figure on top dominates, and you show bigger figures of growth. So when you get the gross domestic product (GDP) you will divide it by the number of [people in the] population. So, you would think that these figures are high.

Number two, what we see in the growth is construction. Construction is not cumulative; it is a onetime activity. When that building is finished there is no more [work]. You use construction in transition from problem times to better times because you want to create jobs.

Now construction is ahead of space needed. You look at buildings for offices in Addis, after the fourth floor it is empty, because the economy did not follow the construction. It is the construction which is leading, and that is very dangerous.

If you build a road before its economic value is needed, before you have the traffic required to make it viable, then you are forced to wait. I am worried that some of these roads will turn into something like that. You have to link infrastructure development with economic development. For example, if you open up western Ethiopia to big agriculture development, yes, building big asphalted roads there is the best thing to do, but if you have not opened up that area, what are you doing? It is better to use the money to open up the area.

As I told you, construction is an economic growth in absolute terms, but it has no reflection in the common man’s livelihood. It does not feed you, it does not clothe you, [and] it does not educate your children. So there is growth, yes. That growth is not 10pc, obviously.

Q. What is the major area of focus for economic development in the AEUP?

First, rehabilitate agriculture and open up new land areas is one thing. Feeding the people is the number one priority, so food production has to really skyrocket. It could also give incentives to the private sector to go into the valleys, especially in the western part of Ethiopia. There is abundant land and water to start the production of food.

Once you finish, you go into the production of more processed agricultural products like cotton.

Q. What does the AEUP do to keep the inflation low while at the same time ensuring rapid economic growth?

Take investment from the government’s hands. If you take even half of that you create jobs, people get money in their pockets.

At the moment, people do not have anything in their pockets because the government is not rotating the money. They are putting it down into asphalt, concrete, and steel. Inflation, if it comes with growth, is acceptable. If it comes without growth, that is a disaster.

So, you can not stop inflation completely but you can control it, to give benefit to the people. If food production is increased significantly by helping the farmers and creating big companies to go into the valleys and produce more, then the inflation will be curtailed. Not too many dollars will be chasing too few products, as it is at the moment, especially local products.

The government itself is causing the inflation, not the private sector. So, in the AEUP the government will stop public expenditure.

At the moment, government expenditure in non-productive sectors is so high that you have to stop that. If the expenditure was on the productive sector, it would balance itself, because prices will go down as the supply is increased.

Q. Do you see structural change in the economy? What do you think of the composition of the various sectors in the GDP?

You see, if you do not go into industry in a serious way you will not change the structure. You will depend on rain falling or not falling in the agriculture sector. The service sector is self-defeating. The service sector is mostly government expenditure. So, I will cut down on government staff and retrain these staff and deploy them in the private sector. This can be done easily.

The agricultural sector keeps fluctuating. When the rain falls, the share of the sector to the GDP shoots up, and, when drought comes, its share goes down. In the industrial sector, the few industries that are functioning are not operating at more than 30pc or 40pc of their capacity. So, the contribution of industry to the national economy is negligible. So, we come back to the service sector, which I would consider essential for us to go into the 21st Century, particularly in tourism and software development.

Q. Is a macroeconomic policy sustainable where there is rapid economic growth fuelled by high expansionary fiscal policy while maintaining low inflation rate?

For some time yes; not for an extended period of time. But that is doubtful. If you export, yes. But if you dump it into the local market, no.

Q. What does your party intend to do about the balance of payment crisis?

Balance of payment for a country like ours is really difficult to overcome, let us face it. So, you have to discuss with donors about your priorities and convince them. I am sure they will listen. They even went as far as cancelling a lot of debt for Ethiopia.

Export oriented development also can scrap that a little, stage by stage, but you will never come to a balance until you go into the export of processed and industrial products. You can not do that with raw agriculture produce.

Q. The Birr is depreciating, while trying to encourage export competitiveness? How would the AEUP address this issue?

You see, this sort of thing you can look at from many angles. One angle is, when Birr goes down, capacity to buy goes down. That is then killing the Ethiopian investor. The foreign investor will buy you at a pittance. That we do not want. So, if you look at the exchange rate, you also have to allow the market to do something.

If you control the macroeconomic system, you do not have to tell them the exchange rate is like this and like that; let the market decide. If it goes down today, the instant you start exporting, it goes up. And then you will be having the trouble of your own currency being high and not being able to compete in the world. You do not want that to happen either.

So, to keep that balance i need to know  who are the buyers of my export, and where I am bringing my raw materials from-local or foreign?

These are the balancing acts that the government should study the statistics on and give guidance to go in a direction where it is advantageous to the Ethiopian producer and exporter.