Zenawi’s New Plan: Let them Eat GDP!

He who oppresses the poor to make more for himself or who gives to the rich, will only come to poverty.” Proverbs 22:16

By Wondemhunegn Ezezew — Ethiopia has recently announced its new five year economic plan dubbed as Growth and Transformation Plan (GTP) which details the main economic performance targets and goals as well as the key strategies to be followed in achieving those targets by 2015.

The sum and substance of the new GTP includes, among others, the following general objectives: ensuring fast, sustained, and equitable economic growth; raising the productivity level of the agricultural sector as it remains to be the main source of overall economic expansion; expanding infrastructure (roads, rail networks, hydro electric power generating dams, etc); improving the quality and quantity of basic social services such as access to education and clean water; encouraging competition-driven import substitution industries; creating an industrial-led export sector that plays a critical role in reviving the country’s economy; reducing poverty and combating unemployment by ensuring swift, sustained and equitable economic growth over the coming five years.

More specifically, the new GTP sets a number of overambitious quantitative targets such as ensuring 100 percent national coverage in the provision of basic social services and utilities like access to safe drinking water, primary education, health, and electricity by 2015, which coincides with the deadline of the MDG initiative.

On the macroeconomic sphere, the plan aims to increase the share of the industrial sector (based on the base line scenario) from the current 13 percent of GDP to 19 percent in the year 2015. Under the same growth scenario, aggregate consumption as a share of output will fall from around 90 to 83 percent, gross fixed capital formation (investment) will rise from 24 to 32 percent, and total domestic saving will shoot up from 9 to 17 percent during the same period, all measured as percentage of GDP.

It is important to note that during the PASDEP period (2005-2010), “fast and sustained” were the buzzwords that preceded every description of the Ethiopian economy. It is encouraging to see that under the new GTP “equity” has been included as one of the key issues of government focus even though it is not clear how the benefits from the expected growth will be equitably distributed among the population.

It is also important to note there are many inconsistent assumptions, projections and extrapolations as one carefully probes one’s way between the lines in the GTP document prepared for public discussion. For instance, after so much flaunting about the efforts to be made in order to encourage import-substitution and the focus on industry-led export promotion, the country’s resource gap (the trade deficit) refuses to budge but by a couple of percentage points five years later.

The 100 percent target for electricity coverage is still another proof that symbolizes the classical insouciance and lack of serious deliberation among Ethiopian lawmakers and policy designers who are supposed to carefully assess several parameters before writing and approving the plan. The Ethiopia I know is fraught with rugged mountains; annoying gorges and deep valleys; remote, scattered and inaccessible villages and settlements. Highland Ethiopia, which is inhabited by 80 to 90 percent of the population, poses a great challenge when it comes to building infrastructure facilities. I am not being a wet blanket, but given the difficult geographical barriers and the massive capital requirements, even electrifying the entire Amhara region within five years will be a formidable task, let alone achieve full coverage at national level.

Furthermore, it is stated in the plan that total domestic saving will rise from a minuscule 9 percent of GDP in 2010 to 17 percent after five years. The plan also clearly states that the government will run budget deficits on the order of 3 percent of GDP by the end of the programme, which means that it will spend more than what it collects from taxation and other state sources of revenue. Given the government’s position as a net borrower, most of the expected improvement in domestic saving must come from the private sector, which, at present, is virtually hermetically dominated by party controlled business entities disguised as private companies and enterprises that control the commanding heights of the Ethiopian economy from the export of coffee and sesame to construction and insurance. To preach about private sector development, increased savings from individuals, households and firms on the one hand and refusing to level the economic playing field by dissolving the politically connected illegal companies on the other hand, is simply a contradiction in terms. You do not control multi-billion-dollar worth parastatals that enjoy unfair political favour and talk about an economy driven by free competition and entrepreneurial creativity.

To mention but a final example on the inconsistent assumptions and projections, the new GTP also declares that the number of people living below the national poverty line in Ethiopia will decline from the current 29.2 percent (estimated) to 22.2 percent by the end of the programme implementation period. Currently the population of Ethiopia stands at about 80 million, which leads us to conclude that at the moment some 23 million Ethiopians find it extremely difficult to make both ends meet. Other things equal, assuming that the population continues to grow at the current rate of 3 percent per annum, we will grow to reach 93 million five years down the line, at which point the number of people living in abject poverty will be 20 million (22.2 percent of 93).

Now one may rightly ask these important questions: what or whom does transform the so called Growth and Transformation Plan? We are told that Ethiopia is going to make itself food self-sufficient, with all its citizens having full access to electricity and safe drinking water by the end of the new GTP period. Moreover, the food poverty line produces the same result as the national general poverty line (in both cases 29 percent of the population live in absolute poverty as of 2010). If the new GTP enables Ethiopia to ensure national food-sufficiency after five years, how is it that 20 million people will still remain trapped below the official line of extreme poverty after implementing the plan?

Growth is not all

Soon after the announcement of the new GTP by the government, many reacted quickly and ridiculed the plan, saying it is overambitious, unrealistic and pure fantasy. Some even went further to claim that the sky-high performance targets set in the new plan were deliberate political calculations designed to switch public attention and resentment away from the May 2010 electoral farce, which gave the ruling party a complete sweep in the federal parliamentary contest.

There were also some folks who tried to dilute the real issues on the table by making gratuitous reference to methodological and technical intricacies in regard to data measurement and economic forecast as if artificial econometric models were a substitute for the complex ebbs and flows of real world economy. These guys seem to forget that econometric forecasting is neither good nor bad approximation of reality. Too often, even after incorporating hundreds and thousands of variables into their forecast function, econometricians would disconcertedly tell you that their model does not capture the entire relationship in relation to the variable of interest (say GDP), making it necessary to complement a significant portion of their forecasting with expert judgment, statistical analysis and evaluation of the prevailing and future socio-economic and political environment.

This is not to play down the significance of the level of prudence needed in ensuring the appropriateness of the chosen model or verifying the reliability of the information incorporated into it. Rather it is to point out that the real issue should be whether or not the so called growth is benefiting the majority of Ethiopians, and not whether or not the right methodologies or models are applied in the growth forecasting process, which is an intellectual luxury that does not help the average Ethiopian who is homeless, hungry or marginalized. This is because, at the end of the day, despite all the ivory-tower vanity and arrogance, the whole issue eventually boils down to a condensed and straightforward refrain: how many people and how much money?!

In fact, true economists do understand that economics is an art, not a science. It cannot and should not be seen detached from the quotidian actions, behaviour, and intractable human psychology, which make future forecasting all the more difficult. Otherwise, with so much sophistication and advancement in the field of economic forecast, how come economists and econometricians failed to predict the exact magnitude of the current economic crisis in the US, for instance, which led to millions of job loses and foreclosures, and devastating erosion of household assets and life-long pension savings, at a level unheard of since the Great Depression of the 1930s? Why it is that no one took some proactive measures to prevent such tragedy from happening or conjure up a few magic formulae to clear the messes in the aftermath of the economic debacle?

The economic soothsayers out there have no definite and convincing answers to these questions; and by bringing in their misplaced econometric crystal ball to the scene, not only they distract attention from real issues but also show their bizarre insensitivity to the pain and suffering of their own people. Thus, these party apparatchiks and charlatans (who bring in irrelevant methodological issues hiding behind a veil of self-serving diatribes), cannot persuasively explain why a government in power for twenty years is even unable to feed its own subjects because they devote their entire soul to defend the flawed economic philosophy of an irresponsible regime, not to voice the concerns of millions of their fellow compatriots who have been suffering the rough ends of economic injustice and political repression under the very regime they ardently defend and support.
Genuine economists read both statistics and human faces. Noble Economic Laureate Joseph Stiglitz is one of them. Stiglitz, a firm believer in human-oriented markets and a vocal critic of “corporate welfare” in the US, once visited China and penned his observation beautifully which reads as follows: “the old economic model has been a resounding success, producing almost 10% annual growth for 30 years and lifting hundreds of millions of Chinese out of poverty. The changes are apparent not only in the statistics, but even more so in the faces of the people that one sees around the country.”
Now take a brief recess, flip over the pages that read the official statistics about the ‘unprecedented’ nearly decade-long double digit economic growth that we are heavily bombarded with on a daily basis; then look at the wretched faces of tens of millions of Ethiopians and enjoy the contradictions.
Of course, no one in his right mind would argue that growth is not important; because without growth it would be impossible to make meaningful progress in mitigating poverty and combating unemployment. Economic growth is a self-reinforcing phenomenon: high growth entails high employment, which in turn leads to increased spending on goods and services resulting in higher investment and business expansion. Rapid business expansion broadens the tax base for the government, which will be able to raise enough funds to finance the construction of quality roads, bridges, power dams as well as schools and universities, all of which contribute to further growth by lowering transportation and other transaction costs, as well as by providing the business community with competent and skilled manpower whose training is paid for from state coffers.
But, it would also be wrong to argue that growth as measured by GDP will solve the myriad social and economic ills that indiscriminately engulf our society from north to south and from west to east. In fact, at times, it can make things worse.
Gross domestic product (GDP) is the monetary value of all transactions in finished goods and services produced within the geographical boundaries of a country during a particular period of time, usually a year. It includes individual and household spending on consumption; government expenditures on salaries and capital goods; business investment spending and our net export.

GDP counts all the money that the government spends on unscrupulous projects such as the purchase of lobbying services from
DLA piper or the money used to finance the invasion of Somalia. It does not, however, consider the loss of Ethiopian soldiers who perish in the deserts of Somalia fighting for superpower interests or the suffering of 80 million people under an autocratic rule whose legitimacy emanates from“lobbyocracy.”

The conscious destruction of forests in Gambela and the increase in farm production by export-oriented foreign investors doing business in Ethiopia are both included in the country’s total gross domestic product. But GDP fails to appreciate the environmental degradation or resource depletion that occurs as a result of such forest-clearing activities. Nor does it take into account the economic hardships that befall the various indigenous people of Ethiopia who are heartlessly being evicted from their ancestors’ land just to favour the greedy, immoral, and profit-sniffing global agri-businesses.

Gross domestic product includes the profits of sugar and chemical treatment firms but it does not account for the pollution of rivers where these firms dispose of their harmful wastes nor does it calculate the health costs and risks resulting from such water pollution and chemical contamination.

What is more, ill-conceived, poorly designed and recklessly-built roads through tourist destination landscapes such as the Semen Mountains National Park are heralded as an expansion in economic growth but the long-term ecological and aesthetic implications of such roads on the future tourism industry of the nation are downplayed or completely ignored.

Thus, GDP does not precisely tell us whether the majority are benefiting from its sustained increase or whether people are losing their only livelihood because of poor judgements made when the interests of foreigners take precedence over the protection of the fundamental rights of citizens for a decent life. It does not reflect the instability in our society, the lack of solidarity among our people and the existence of pervasive and increasing wealth and income inequality between individuals, households and regions.
As author and sustainable future campaigner John Robbins forcefully put it in his recent article: “It [GDP] does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country. It measures everything, in short, except that which makes life worthwhile.”

So, we are told that Ethiopia’s GDP will double in five years under the new growth and transformation plan. Who cares even if it
triples or quadruples by 2015?

The United States, the world’s biggest economy, is a good example that illustrates the curse of economic growth as measured by GDP. Sitting on the top of the global list with a total GDP valued at $15 trillion, the US is a place where 50 million Americans (17% of the population) cannot afford to put basic food items on their table. Hundreds of thousands of Americans are homeless, and the US has one of the highest levels of income inequalities in the world, with the richest top one percent of the population controlling nearly 50 percent of the national income.

A seminal study conducted by California University professor Emmanuel Suez shows a startling result: between 1993 and 2008 real household income in the US grew by 1.3 percent annually, which amounts to a 20 percent cumulative growth over the 15 year period under investigation. During this period, the income of the top one percent increased by 3.9 percent per annum, a total of nearly 80 percent increase in fifteen years; while the income growth of the bottom 99 percent teetered at around 0.75 percent yearly, representing a cumulative growth of only 12 percent over the one and a half decade period. This indicates that the top 1 percent amassed nearly half of the overall income growth between 1993 and 2008. But GDP does not reveal such mysteries.

So much for the virtues of unfettered capitalism and America’s brand of rugged individualism. The good news is that recently we are witnessing Ethiopian officials mercilessly waging a series of well-coordinated assaults against the American philosophy of laissez faire economy. Though we may question the (political) motives behind such move, the anti-neoliberal crusade is a good start in the right direction.

Markets constitute the corner stone for every vibrant economy; yet unrestrained market economy, as embodied by the US, is a recipe for social disaster by allowing tiny economic elite to unfairly gather much wealth at the expense of the majority of the population. This brings us back to the central theme of the article: mere economic growth driven by the mysterious forces of the market will do little to help reduce the ubiquitous poverty that the nation finds itself in. Thus, the government has great national duty and responsibility to ensure that the benefits of economic growth do not “trickle up” to a handful of business and political elites and professionals.

I have mentioned it twice or thrice some where else in the past. And I will mention it here once again: a path of growth and development which never attempts to articulate specific programmes and strategies to support the farming and pastoral communities in Ethiopia can hardly make any progress either in eradicating absolute poverty or raising the standard of living of the citizenry.

Consider the agricultural sector, for instance. The incumbent regime has always tried to defend its agricultural-led economic policies and strategy, saying agriculture is the mainstay of the Ethiopian economy and that it should receive the greatest possible attention and the strongest support in line with the resource capacity of the nation. The key reason that underpins such philosophy is that by raising the level of income and improving the purchasing power of the vast agrarian community, it is possible to create strong domestic demand for manufactured goods, thereby creating a two-way linkage between agriculture and industry.

In reality, however, this government has played a leading role in perpetuating rural poverty in Ethiopia by exploiting the peasantry more ruthlessly than any other government in our history.

During the master-slave-relationship system of the feudal era, it was the landlords, aristocrats and the royal family members who owned the land and extracted the annual harvests from the tenant leaving him with an insignificant portion of the cereal harvested for his survival. If drought or some other natural disaster destroyed the tenant’s farm, his master would magnanimously terminate the peasant’s obligation for the year and no arrears would be recorded in the landlords’ books for future settlement.

The story is more repulsive and unexplored when it comes to tenancy under this government. The aristocrats have been supplanted by political and business oligarchs who work together to enrich themselves using the farmer as the surest and quickest source of their windfall. They urge, and sometimes hoax the farmer, into applying fertilizer, improved seeds and other farm inputs, saying it would increase his production as well as productivity. Certainly his farm output increases dramatically after using these inputs, but the farmer does not have the right to retain the extra output which has to be sold and forwarded to the “fertilizer lords” who happen to be politically connected distributors, traders and creditors. Every year production increases in this way, the officials at Ethiopia’s Central Statistical Authority report it as “unprecedented growth,” but they do not tell us it is the income and wealth of few fertilizer lords that shoots up by leaps and bounds. Life for the average Ethiopian farmer remains hard and unbearable.

The agricultural revolution that Meles and company are obsessed with is a revolution of renewed commitment to prolong rural poverty and condemn the majority of peasants to increased misery and suffering. Under the feudal era, tenants paid tributes out of their produce. If locusts invaded their farms and nothing was harvested in the process, the landlords were “kind enough” not to claim outstanding obligations for failed crop seasons. In today’s Ethiopia farmers are forced to remove the corrugated iron from their roofs, sell their only ox or migrate to towns, cities and cash crop producing regions to work as daily labourers in order to clear their fertilizer debt owed to the government or government guaranteed creditors.

Unless something is done to reverse this exploitive system, no meaningful reduction in poverty can be achieved. And the government’s dream of using the agricultural sector as stepping stone for grand industrial development in Ethiopia will remain a pipe dream.

It is straightforward and logical. If you give Mr. X fertilizer to expand his farm, and each year you come and collect the increased output, there is no way that Mr. X will become financially independent. There is no way that he will increase his savings and demand for manufactured goods. There will not be such thing as creating an industrial consumer society out of rural Ethiopia so long as the government is not ready to take serious supportive measures to increase rural income and savings. It only takes political will and about half billion dollars a year for the subsidies (which is roughly the c.i.f value of our fertilizer import in 2009). After all, 90 percent of the country’s export revenue is generated from agriculture and commonsense dictates that the farmers should be the primary beneficiaries of their efforts—a good portion of this revenue must be used to subsidize household fertilizer consumption.

Malawi has shown us how a government can do the trick when it invests in its farmers by providing them with hybrid seeds and fertilizer free of charges. Of course, exaggeration of production, confounding bureaucracy, corruption and the use of subsidies for political advantages are inevitable, problems which could be tackled with increased transparency and accountability in public resource allocation and administration. Moreover, efforts to liberalize the rural land market in Ethiopia (if necessary to be complemented by imposing a ceiling on the size of landownership to prevent feudal style land concentration) can further help improve efficiency by enabling the exploitation of economies of scale. Government financial support coupled with land tenure security will embolden farmers to invest more time, energy and resources in soil conservation and sustainable land management efforts.

Ethiopia’s problems are so many and so complex—a great deal of them historical—that I do not blame Prime Minister Meles Zenawi for failing to make Ethiopia an industrial powerhouse over the past two decades of his rule. But given the relative peace and the enormous aid money pumped into the country since 1991, he is fully responsible for failing to fulfill his pledge of three meals a day for every Ethiopian.

The new GTP flamboyantly declares that Ethiopia will be food self-sufficient in the coming five years. If it is business as usual, the new five year economic plan will be another cheap propaganda and nothing positive will come out it. If we see some detailed programmes to subsidize household farming at micro level, then it will be possible not only to ensure food security at national level but also to create an economically capable rural society with increased income and savings that could propel industrial expansion through investment and spending on manufactured goods.

Eradicating extreme poverty or achieving full national food security in Ethiopia is not an impossible task; it only takes bold leaders who look beyond their narrow ethnic world view coupled with nationalizing the fertilizer market temporarily, say for five or six years; liberalizing the land market (with a ceiling on maximum number of hectares for individual ownership to prevent excessive concentration); tackling the population explosion problem; creating an efficient banking/financial system to effectively mobilize resources, build savings and allocate these resources to productive sectors of the economy; tightening the floodgates at Ethiopia’s Birr printing press (less power to the monetary authorities at the National Bank of Ethiopia), and above all dismantling all the illegal party-owned companies which distort competition and discourage innovation. Anything less is simply tantamount to saying: let them eat GDP!

For comments bishangary@yahoo.com

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Posted by on September 25, 2010. Filed under NEWS. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.