The Fun Zone prognosticates on Ethiopian economic policy
Well, let’s dabble in politics for a bit. Before we do, a big love and hello to my folks in the great state of Washington. Love you both (and my brother and sister-in-law), miss you, and love to hear that you are all doing so well. Special ups to my dad who may be returning to the workforce – good luck and can't wait to see how this goes.
Enough gush; back to Ethiopian politics. No formal announcement has been released from the Electoral Board yet; partial results are supposed to come later today. Both sides have claimed victory at various points. There seems to be some consensus that the split will go something like 200 to 300 in favor of the ruling party, but all that is merely “chasing after wind” as one of my favorite passages in the Bible says, until the Electoral Board makes formal announcements.
I was able to read a little of the opposition’s platform in one of the newspapers today. Up to now, the only opposition platforms I actually knew were that they wanted to retake the Port of Assab, a city which sits in what the United Nations has defined as Eritrea. They also are concerned that the ruling party unfairly favors the Tigray, an ethnic minority in the north of the country. (The 1991 revolution was founded and led mostly by people from Tigray and they have remained in power since.) People who voted for the opposition claim that the current government has taken resources from the rest of the country and distributed them within Tigray.
Anyway, those were the two positions I was familiar with. This morning I read about a couple of other issues in their platform. One is to liberalize the banking sector to allow greater competition within the country and to allow foreign banks to enter. It is believed that the latter, in particular, will attract foreign investors that can lift the economic production of the country.
One of their other major platforms is land reform. Specifically, the opposition indicates that it wants to privatize land throughout the country. To quote the party’s leader, “What we have told rural people is that [land] is yours. You can sell it. You can keep it. You can transfer it. You can do anything with it…”
Let me go a little Paul Krugman on you (my favorite columnist who writes on economic policies for the New York Times [Mark Rich – you are getting closer to the top spot]). Anyway, I’m concerned about both those positions. In the event that Kenejit (the opposition) wins, I should be delicate with how I approach the subject, but I have an uneasy feeling in my gut about both positions described above.
Granted, they are linked. Privatizing land will draw more people to the cities where foreign banks and investors should create labor demand, thereby preventing some of the unrest caused in cities throughout Africa that have urbanized without providing suitable employment for their populations. But, all in all, this isn’t my real concern.
My biggest fear is probably with the banking proposal. It strikes as fundamentally wrong in a country whose very existence and soul is attached to the idea of independence. Maybe it’s just the people I’ve been running with, but I think the idea of independence is something at the bottom of every single Ethiopian's soul. Is that fair to say in the face of famine and disease? Am I a good judge of what a hungry mother in a rural area of Ethiopia feels? I’ve tried to answer that question before and been unable to reconcile those two points of view. One thing to ask yourself, though, is whether foreign banks, investors, etc., will necessarily have an interest in that same mother? Maybe enough interest to shave off the edges of absolute inequity, but not much beyond that.
No, the banking idea just strikes me as wrong. I guess I have a fundamental belief that any society should be “master of its own destiny”. I think this includes Ethiopia. Ethiopia has a long way to go to “master its destiny” from famine, civil unrest, and disease. But still, my fear is that foreign banks will guide policies exclusively to their benefit – that is what they are required to do by nature. Did you know that publicly listed companies in the United States, and probably elsewhere in the world, are guided by fiduciary contracts which require them to make a profit? The question becomes, over what timeline do they make their profit, how intensively do they use available resources at any given time, etc.?
The problem is Africa, including Ethiopia, is so far removed from the reality of those who would invest. Foreign banks can invest in Ethiopia and Africa without really have to take on a great deal of risk. While their investments can have significant impact in Ethiopia, the returns they generate will not necessarily be as important and, as such, decisions can be made differently than they would for say, a housing project in London or road construction in New York City.
Well, I know I didn’t do justice to Paul Krugman, but I will continue aspiring to be a freelance economist. I guess one other thing that bothers me about the above policy inclinations is that people may not be aware that those are part of the package they are receiving. It’s easy to rally people to the cause of the Port of Assab and get their blood boiling about ethnic favoritism, but I’m not sure all those 2 million people who demonstrated a couple of Saturdays ago in Meskel Square really have thought through the implications of land and banking reforms. I’ve thought them through as best as I can in 24 minutes and given you my impressions. What do you think?
Oh, and if you are thinking, “well, what should we do, then,” Here’s my suggestion. Keep the banking sector largely as is, but maybe allow one foreign bank to compete (in order to transfer ideas and drive existing banks to improve service and capacity). Cap the amount of assets the bank can own and the amount of profit it can take out of the country. Do this for five to eight years – should be enough time for Ethiopian banks to really get themselves in gear.
In terms of land reform, it’s hard to say. You’d like to see industrialized agriculture able to feed the population, but that remains owned by Ethiopians. You’ve got a problem with food aid in this case, because it undercuts local production by creating unfair price competition. Do you phase out food aid by subsidizing industrialized production? How do you get industrial production without investment – machines are big, transport costs money, etc. I think this is another area where Ethiopia must progress – the legal system. Legal infrastructure must be in place to guarantee that contracts are honored and that wrongdoers are punished. You can’t afford to have people pool their money together to buy a tractor or something bigger only to have one person run off with all the money. But a strong legal infrastructure should allow Ethiopian driven investment – and there is a lot of money available for this buried in houses throughout Ethiopia – to take place outside of putting up a building.
I’m outta here.
Enough gush; back to Ethiopian politics. No formal announcement has been released from the Electoral Board yet; partial results are supposed to come later today. Both sides have claimed victory at various points. There seems to be some consensus that the split will go something like 200 to 300 in favor of the ruling party, but all that is merely “chasing after wind” as one of my favorite passages in the Bible says, until the Electoral Board makes formal announcements.
I was able to read a little of the opposition’s platform in one of the newspapers today. Up to now, the only opposition platforms I actually knew were that they wanted to retake the Port of Assab, a city which sits in what the United Nations has defined as Eritrea. They also are concerned that the ruling party unfairly favors the Tigray, an ethnic minority in the north of the country. (The 1991 revolution was founded and led mostly by people from Tigray and they have remained in power since.) People who voted for the opposition claim that the current government has taken resources from the rest of the country and distributed them within Tigray.
Anyway, those were the two positions I was familiar with. This morning I read about a couple of other issues in their platform. One is to liberalize the banking sector to allow greater competition within the country and to allow foreign banks to enter. It is believed that the latter, in particular, will attract foreign investors that can lift the economic production of the country.
One of their other major platforms is land reform. Specifically, the opposition indicates that it wants to privatize land throughout the country. To quote the party’s leader, “What we have told rural people is that [land] is yours. You can sell it. You can keep it. You can transfer it. You can do anything with it…”
Let me go a little Paul Krugman on you (my favorite columnist who writes on economic policies for the New York Times [Mark Rich – you are getting closer to the top spot]). Anyway, I’m concerned about both those positions. In the event that Kenejit (the opposition) wins, I should be delicate with how I approach the subject, but I have an uneasy feeling in my gut about both positions described above.
Granted, they are linked. Privatizing land will draw more people to the cities where foreign banks and investors should create labor demand, thereby preventing some of the unrest caused in cities throughout Africa that have urbanized without providing suitable employment for their populations. But, all in all, this isn’t my real concern.
My biggest fear is probably with the banking proposal. It strikes as fundamentally wrong in a country whose very existence and soul is attached to the idea of independence. Maybe it’s just the people I’ve been running with, but I think the idea of independence is something at the bottom of every single Ethiopian's soul. Is that fair to say in the face of famine and disease? Am I a good judge of what a hungry mother in a rural area of Ethiopia feels? I’ve tried to answer that question before and been unable to reconcile those two points of view. One thing to ask yourself, though, is whether foreign banks, investors, etc., will necessarily have an interest in that same mother? Maybe enough interest to shave off the edges of absolute inequity, but not much beyond that.
No, the banking idea just strikes me as wrong. I guess I have a fundamental belief that any society should be “master of its own destiny”. I think this includes Ethiopia. Ethiopia has a long way to go to “master its destiny” from famine, civil unrest, and disease. But still, my fear is that foreign banks will guide policies exclusively to their benefit – that is what they are required to do by nature. Did you know that publicly listed companies in the United States, and probably elsewhere in the world, are guided by fiduciary contracts which require them to make a profit? The question becomes, over what timeline do they make their profit, how intensively do they use available resources at any given time, etc.?
The problem is Africa, including Ethiopia, is so far removed from the reality of those who would invest. Foreign banks can invest in Ethiopia and Africa without really have to take on a great deal of risk. While their investments can have significant impact in Ethiopia, the returns they generate will not necessarily be as important and, as such, decisions can be made differently than they would for say, a housing project in London or road construction in New York City.
Well, I know I didn’t do justice to Paul Krugman, but I will continue aspiring to be a freelance economist. I guess one other thing that bothers me about the above policy inclinations is that people may not be aware that those are part of the package they are receiving. It’s easy to rally people to the cause of the Port of Assab and get their blood boiling about ethnic favoritism, but I’m not sure all those 2 million people who demonstrated a couple of Saturdays ago in Meskel Square really have thought through the implications of land and banking reforms. I’ve thought them through as best as I can in 24 minutes and given you my impressions. What do you think?
Oh, and if you are thinking, “well, what should we do, then,” Here’s my suggestion. Keep the banking sector largely as is, but maybe allow one foreign bank to compete (in order to transfer ideas and drive existing banks to improve service and capacity). Cap the amount of assets the bank can own and the amount of profit it can take out of the country. Do this for five to eight years – should be enough time for Ethiopian banks to really get themselves in gear.
In terms of land reform, it’s hard to say. You’d like to see industrialized agriculture able to feed the population, but that remains owned by Ethiopians. You’ve got a problem with food aid in this case, because it undercuts local production by creating unfair price competition. Do you phase out food aid by subsidizing industrialized production? How do you get industrial production without investment – machines are big, transport costs money, etc. I think this is another area where Ethiopia must progress – the legal system. Legal infrastructure must be in place to guarantee that contracts are honored and that wrongdoers are punished. You can’t afford to have people pool their money together to buy a tractor or something bigger only to have one person run off with all the money. But a strong legal infrastructure should allow Ethiopian driven investment – and there is a lot of money available for this buried in houses throughout Ethiopia – to take place outside of putting up a building.
I’m outta here.
posted by AARFZ at 8:58 AM
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