Ethiopia’s unfolding political and economic crises: Ineptitude, “bonds or bombs”?

Getahun Assefa

Every second, minute, hour, or day, the sheer ignorance and stupidity of Abiy Ahmed Ali’s (henceforth Abiy) regime surprises us. Sometimes, it is difficult to fathom what the ethnocratic (political) elites chew, what stimulants they take, or how their brains function. What we know though is that Abiy is an uneducated, unhinged, and stubborn person. His likes are Mohammed Gadhafi, Sadam Hussein or Idi Amin Dada Ume.

His repeated diatribes and bravado at the parliament are incomprehensible and unbelievably shallow. His economic thinking (if any) and his understanding of the fundamentals of development of nations are unacceptably low. Yet, he thinks that he is a genius or giant thinker in the country. His gullibility is exposed by his attempts to compare himself with the founders of great nations such as Singapore, South Korea, and Malaysia. He thinks decorating the streets in Addis Ababa with red lights is development, while millions of people in the capital city go hungry, sick, or use electricity in shifts, let alone infant industries.

What we also know is that it is impossible to educate stubborn and arrogant minds. It is easier and customary to educate unlearned minds than empty brains that are full of themselves.  Sadly, Abiy’s brief stay in the USA did not teach him humbleness and humility. Nor did it teach him how to resolve his incompetence, let alone multiple and vexed problems of the country of 130 million people. Instead, he spent time and energy learning how to phonetically pronounce “dollar” as “Dα: l∂”. He occupationally attempts to do so. It has become habitual to hear him uttering “dollar” and “Dα: l∂” or vice-versa in two subsequent sentences.  

What I wanted to reflect on today is not about Abiy’s stammering and unnecessary pronunciation. Nor is it about his difunctional or abnormal brain.  Rather, it is to shed light on the regime’s vacuum of thoughts and inability to understand minimum or basic laws of business and economics as well as related ethics, and functions.

On 5 November 2024, the sleeping ethnocratic parliament of Ethiopia approved the sale of 900 billion birr (7.5 billion US dollars) in government bonds. The stated objectives are to cover uncollectible (bad) loans, settle nonperforming loans of State-Owned Enterprises (SEOs), and recapitalize the Commercial Bank of Ethiopia (CBE). 

My concern is not the approval of the law by the incompetent and lawless parliament. Rather it is whether the bonds placed on sale are rated by respected and independent credit rating agencies. Without a prior rating of the worthiness of the bonds and the ability of the government to pay back the coupon (interest rate) plus principal, the parliament has no business approving the sale of government bonds.  

The rating of government bonds by credit rating agencies is particularly important because the bonds on sale are government bonds to cover bad or uncollectible loans. Bonds issued in poor, war-torn, and heavily indebted countries that are characterized by weak institutions and unreliable governments such as Ethiopia, are technically termed “garbage” or “junk bonds”. They are labelled as such simply because they carry higher risks of default to the buyer and huge costs to future investments. 

Junk bonds are promises by the issuing governments or corporations. In this case, they are issued by the Ethiopian regime to cover the losses incurred by SOEs due to corruption, ethnic entrepreneurship, incompetence, or gross mismanagement. Some SOEs that the government is attempting to rescue include the Ethiopian Electric Power Authority, the Ethiopian Development Bank, the Ethiopian Commercial Bank, and any other malfunctioning state parastatals. Junk bonds are also those given the lowest or inferior ratings by established credit rating agencies because of the high probability of default (high risk) they carry.

Who buys junk bonds from failed states and governments?

In the Ethiopian case, the likelihood buyers or suspects are corrupt political elites and government officials, ethnic entrepreneurs, illicit traders and brokers, unofficial businessmen and businesswomen as well as party-affiliated enterprises. This is because such parasitic individuals, enterprises, and institutions hold a stash of stolen cash and ill-gotten wealth.  Even if their investments in junk bonds are risky, they lose nothing as the invested funds are not products of their sweat. Their drive is not business or profit-making but investing stolen funds in such trash bonds.  

In principle or theory, junk bonds, because of their risky nature, can provide higher yields than well-rated investment bonds. In economics or international finance, higher risks are always associated with higher returns. The question is who can afford to lose hard-won wealth and funds other than those who benefit from corruption, weak institutions, poor mechanisms of financial supervision, and unaccountable, irresponsible, and defaulting regimes such as Abiy’s? In other words, ethnocratic businessmen and businesswomen are not optimistic (“bullish”) or risk-takers per se. Instead, they care less if their investment in junk bonds is completely wiped out or defaulted by the government.

In countries where market mechanisms are distorted and dysfunctional and where state institutions lack accountability and transparency such as Ethiopia, investing in junk bonds carries an enormous risk of default. Even in developed countries, junk bonds are lower-quality investments, issued by financially struggling companies, corporations or disparate governments with credit ratings below BBB-. Such ratings mean that investments can offer higher yields but with a greater chance of default than more credit-worthy investment-grade bonds. Ethiopia is recently upgraded from CCC- rated as CCC+ This means that those investing in Abiy’s junk bonds should begin crying now or the moment they make investment decisions to buy such bonds.

I continue asking. Who, with the right mind, is going to buy such garbage or junk bonds from a collapsing government?  Why should anyone buy such rubbish? For what purpose? What creditworthiness does the Ethiopian regime have? From where it is going to pay high interest rates plus the principal if ever uninformed local investors buy such junk in addition to ethnic cadres? 

While we all know that the regime has already defaulted EURO bonds, violating all international norms and ethics of business relationships, it is not surprising to see the move to sell junk bonds in domestic markets. What is surprising though is the audacity to mislead and the cruelty to rob people of the little savings they have.  Why is the parliament spending taxpayers’ money in publicly approving the law for the sale of junk bonds which is inconsequential to the hungry children, women, and men on the streets? What is more ignorant and stupid than this?

Heavy external indebtedness

Besides habitual cheating and lying, the Ethiopian regime is swimming in exorbitant public and external debts. Ethiopia is one of the few poor countries that is persistently in debt distress situation. The country also has repeatedly defaulted on its commitments to pay private EURO bond creditors. The socioeconomic meltdown, mounting indebtedness and currency crunches facing Ethiopia forced the regime to accept excruciating reform programmes prescribed by the World Bank and the International Monetary Fund (IMF). Does the regime understand that bond sales further skyrocket the country’s public indebtedness? While the ethnocratic regime of Abiy is busy purchasing drones and bombs to decimate its citizens, notably Amharas, who is going to buy garbage bonds from the regime that is sitting on a hot stove? 

Conclusion

I suspect that covering uncollectible debt is a camouflage. It is not a genuine reason. The intention may be to pay salaries to demoralized army personnel or teachers and functionaries who have not been paid for months if not years. It may well be also to finance the ongoing wars in Amhara region and elsewhere in the country.

Therefore, my humble advice to all genuine businessmen and businesswomen as well as fellow citizens is please do not even think of buying junk bonds from a junk government – be it in Ethiopia or elsewhere. Junk bonds are like timebombs. They will first destroy you, and subsequently your wealth, health and family. Eventually they also kill  citizens and nations.

Editor’s note : Views in the article do not necessarily reflect the views of borkena.com

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