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Fixes to help the economy survive (By Kebour Ghenna)

By Kebour Ghenna
December 23,2018

The big story that will soon hit the media is how the country will soon go broke.

My guess: with a big bang!

The country was already on the road to ruin long before the advent of AA to 4 Kilo… Former PM Meles abandoned fiscal discipline to let bad debt expand, corruption to spread within METEC and other entities, and allowed deficits to grow. Haile Mariam Dessalegn accentuated the drift. There is some hope that Aby Ahmed – with his batteries of reforms – would revamp the economy and change the course of history. But the new PM seems to get sucked by 1) internal political crises… and 2) slow pace of implementing economic reforms.

Today, one doesn’t need to be a wizard to recognize Ethiopia’s business mood has soured. The Central Bank has lost its way. It can’t really lower the amount of debt of the country, (as a matter of fact debt has gone up much faster than income in the last ten years). It (the CB) can’t increase the real output of firms, generate growth, boost employment, uplift the poor, support the development of small-scale industries and the promotion of domestic manufacturing.

Yes, ladies and gentlemen business volume is dropping, people have stopped buying houses, expansion plans are shelved, and the weakest companies are unable to pay their debts.

And yet, driven by strong public sector investment Ethiopia’s economy is said to remain among the fastest growing economies in the developing world and is expected to grow at high rate in 2019. Hard to believe!

But the trend is increasingly pointing down. The massive debts intended to achieve growth are piling on every day. For a sense of perspective, Ethiopia had less than USD3 bl total debt in 2006. Today, it’s about $30 bl. No exaggeration. That’s an unbelievable increase in under 12 years.

So yes, there is a crisis waiting to happen. But ho!… Reforming or fixing a broken economic system is never easy, particularly when the problem is structural. For the now, now, however, something has to be done to hold together the broken system… like a duct tape, until the leaders start reflecting on transforming the socio-economic-political system of the country (…something to think about).

Put to task business would have voted for the following fixes to keep the economy from going broke.
• Establishment of a task force to organize an Ethiopia Investment Conference, to raise at least $15-20 billion to boost the productive investment of the economy over the next five years.
• Step up privatization of non strategic companies.
• Steer clear of additional debts; you can’t settle debt with more debt.
• Support business startups and scaling up.
• Introduce land market program, including buying, selling or leasing. .
• Temper laws that explicitly curtail labor-market flexibility to increase job creation and manufacturing success, while at the same time investing to increase productivity of the labor force.
• Scrap excessive regulations that prevent business to grow.
• Sustain and expand the remittance growth.
• Adopt gradual financial liberalization including interest rate liberalization, increase the penetration of foreign capital into the country’s financial industry in an appropriate way., reduction of reserve requirements, and removal of credit allocation, with adequate regulation and supervision.
• Expand mobile payments service to bring the unbanked into the formal economy, and speed up and simplify the process of sending money from urban to rural areas, and even facilitate insurance premium or microfinance loan repayments, thus slashing microcredit costs and therefore interest rates, which are often at least twice or three times the market rate.

Are these reforms going to make Ethiopians richer?

We don’t know. Our guess is that these fixes will give the country some breathing space…or so.
Editor’s Note : This article appeared first on Kebour Ghenna’s facebook page on December 21,2018.

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