Ethiopian Economy: Mushe Semu, Ethiopian Democratic Party (EDP)

Mushe Semu
Mushe Semu, Ethiopian Democratic Party (EDP)

Q. To what extent should the state be involved in the management of the economy? Where should significant involvement be?

The EDP has laid out, in detail, the involvement of the state in economic management in its manifesto. There are two things to consider.

First, when the economic situation necessitates, a state should directly involve in the market, beginning from price regulation to the management of the supply system. Secondly, economic institutions like the service and industrial sectors should be left to the private sector.

In general, in some sectors, the economy may necessitate the intervention of the state. For instance, the Ethiopian Telecommunications Corporation (ETC) may remain in the hands of the government for the time being. But provision of the service should also be open to the private sector.

But eventually the government should take its hand out of this sector as well, because competition is necessary to bring about quality in the provision of the service and the improvement of the technology.

However, in the current economic situation, there are some economic sectors which require government intervention in the market and there are some which the government is involved in without any compelling situations. For instance, in hotels, beer, and other manufacturing industries and some service sectors. The EDP would have a very limited role in the economic management.

Q. How soon would the EDP leave the market on its own?

It depends on the development of the infrastructure. It should be categorised into a five-year short-term plan and a 10-year long plan, [to determine] the government would be out of the market completely.

Q. What would be the significant role of the government?

Government should focus on facilitating the creation of job opportunities, encouraging and providing protection for the participation of citizens in the economy, and engaging in the development of infrastructure. But there might be government intervention during a recession, depression, or boom in the economy.

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

These instruments are used to monitor the economy. They can be used to regulate inflation and depression and in a way to facilitate the economic growth.

Also, a government should be responsible for the circulation of the money in the market. The current measure taken by the government to reduce the circulation of money in the market, which reduced bank’s lending capacity is one example. The science supports that.

However, when you put excess shrinkage on the lending capacity of the banks, the informal sector, which is mainly dependent on loans from banks, would be affected, and that could create insecurities in the sector. This, in turn, affects employment because it is the informal sector which created many job opportunities. So this measure may collapse.

It is not appropriate for the government to take measures that restrict the private sector, which is functioning with limited capital while the government’s expenditure is very high due to the construction of dams and roads.

Using monetary and fiscal policy is simply a science for me to regulate the economy.

Q. Do you think there is economic growth?

There is a gross domestic product (GDP) growth in Ethiopia, but does GDP growth indicate the growth of the economy? No. The main indicator of economic growth, nowadays, is income distribution. The GDP is not reflected at the individual level. It is not effective in income distribution and has not added [to] the per capita income of the society.

Poverty, famine, high unemployment, and so on still exists in Ethiopia. Economic growth should create more jobs and stability for citizens. Just looking at the GDP we can not say that there is economic growth. A few rich men can raise the GDP high.

A country’s economic development includes the provision of education, health, water, and it also includes psychological aspects. When you add and subtract, the GDP has shown growth, but the society has not benefited, even through a trickledown effect. The income distribution is zero.

Q. How would your party bring about economic growth, while maintaining a low inflationary rate and at the same time distribute wealth?

Focus should be given to creating job opportunities. You may [also] call it poverty reduction, which is also related to creating job opportunities.

How we create job opportunities is the question. To do this, we have to evaluate our investment policy carefully. One area of focus is that [of] encouraging investors to engage in investment activities. The other is, allowing foreign direct investment (FDI) to foster in the country by creating peace and developing technically capable human resources for the country.

Currently, we do not have a highly disciplined workforce or technically capable human resources. In addition to this, our investment policy is not encouraging. For instance, investors lose a lot of money through land leases when they should have been given land for free. Then they go to the banks to raise more money; however, the banking service in this area is very poor.

The lending system is simply collateral based, so there is no opportunity for a loan to be extended without collateral. The loans are [in] limited amounts and are extended for the short-term, and interest rates are so high. Banks and investors should be partners; this is not the case in Ethiopia. So, the government should intervene and help out. The other sectors, which create jobs, should be given attention by the government. At the end of the day, it is bringing a better life to the society, which needs to be addressed.

Mechanised irrigation is also an area that needs much work. By developing irrigation, the agricultural sector will be expanded. This will create more job opportunities. The service sector, which also employs many people, should be given emphasis. Especially, the tourism sector needs to be developed.

Therefore, creating job opportunities means reduction of poverty. It will also reduce the inflation rate. Infrastructure development is necessary; however, the government should extend the plans for longer periods. The infrastructure should be made at the appropriate time. Some of the construction is made with political motivations. The infrastructure should be made in an efficient and effective manner. This will help in controlling the inflation by cutting the public expenditure. Although the measures taken by the ruling party to control inflation was the right decision, it was taken after a lot of damage was done.

Q. Do you see structural changes in the Ethiopian economy and the composition of the various sectors in the GDP? If not, what kind of reform should be done?

I do not know of a country which developed relying on agriculture. Even if you work intensively on agriculture, you will not bring anything more than subsistence. Because, for one thing, the land is apportioned in small pieces and it is depleted, due to intensive farming for many years. Millions and billions of tonnes of fertilisers have been used on the land. And when you focus on subsistence farming, you will not produce export items. But still, six million people, taking the official figure, are starving. So the sectors should complement each other. It is funny to me when they award farmers. What is the number of farmers that have been awarded so far, 10,000? Out of the 85pc of [the population who are] farmers, what is their contribution? If we give a little more attention to the industry, it will bring a miracle. In the past 10 years, the service sector has been the biggest employer. You can imagine how much [of a] contribution it would give if some attention was given to it.

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

It is ideal, but it does not mean that it is impossible. The developed countries have done that because they maintained this balance. So, when you talk of economic development, this balance is necessary.

But, in the Ethiopian context, it is difficult to achieve that at the required pace and time. Because, wealth creation in Ethiopia is zero and this is one factor that makes our effort to get out of poverty so complicated and difficult. We are simply circulating the wealth instead of creating it.

For wealth creation, foreign direct investment (FDI) plays a major role. The EDP is visionary, so it is possible, but it requires a lot of work due to a lack of wealth in the country.

Q. How would the EDP address the balance of payments crisis and the trade deficit of the country?

The solution is to give emphasis to industrialisation. The biggest contributor to the deficit is oil. Importers are importing chocolates and biscuits. When you look at these things, at least, we can manufacture them using local resources. The cars, candies, cosmetics, and so on we import do not add value. They pay the salaries of someone abroad. We should not empty our pockets and import everything that shines. India is a good example in this case. We export coffee and buy cement, which is just a [type of] soil. We are importing wheat these days.

Our culture and thinking has also its own role. These things worsen the trade deficit. So, import substitution must be encouraged. We must allow micro and small enterprises (MSEs) and industries to flourish. If you do this, you will be able to balance the deficit. I know preventing imports might result in trade war, but we can discourage imports by levying heavy tax on some imported items.

Q. While trying to encourage export competitiveness, how would you address externalities like the depreciation of the Birr?

Export is necessary. To encourage export and investment, you may have to devalue the Birr. But devaluation might also harm the local economy. It may also diminish purchasing power. Therefore, there are factors that necessitate the devaluation of the Birr. The decision to devaluate or revalue is not based on sentiment but factors that force the government. So, depending on the economy, we may devalue or revalue the currency. But we will not be following the motto, “Our money, our identity.”

The EDP is a Liberal Democracy, but in a country like ours with limited wealth, you may not be the purest Liberal Democrat. So, transition is necessary for the economy to stand on its own.