Ethiopia at a Cross-road Again

Prime Minister Abiy Ahmed’s Economic and Political Challenges

In my commentary published in EBR issue 55 entitled “Stand Still and Movement” I expressed my grave concerns about the future of our nation. The coming to power of the new Prime Minister, Abiy Ahmed is a relief for such concerns, at least for now. Abiy is the right pick in all senses of the word to be at the helm of power (as that happens to be the criteria at this juncture in our history). However, for all the peace that he has brought about to be sustainable, it is imperative to understand the major political and economic challenges that he in general, and we as citizens in particular, will be confronting. I will begin to highlight the top five economic challenges first and conclude by briefly noting two major political challenges that are preconditions for addressing the economic challenges.

Unemployment and poverty
The political discourse of getting state legitimacy through the ideology of developmentalism invariably makes economic growth, poverty, inflation and related indicators political competition tools. This, in turn, may prevent political leaders from looking at the real unemployment and poverty levels on the ground.

For instance, the official number of people below poverty line is below 23.6Pct in 2016. This means close to 23.6 million people live below the national poverty line, if we take the population size in the year as 100 million. However, this is computed based on the assumption that an individual can survive with a minimum of ETB20 a day (ETB600 a month) to cover expenses including food, rent, transport, cloth, and energy. In my opinion, that minimum income threshold is very little money to live on.

If we use the international poverty line of US1.25 a day (around ETB1,000 per month) per individual, the number of people below the poverty line jumps to about 65 to 70Pct (65 to 70 million people).

Similarly, the official figure of youth unemployment is about 25Pct. However, if we include those in the informal sector that are officially 20Pct of the work force (my calculation shows that the informal sector accounts for around 40Pct the work force), then we can see how high youth and general unemployment in the country is. In addition, nearly 60 to 70Pct of the households of workers both in the public and private sector could be described as the “working poor”, whose earnings are below the international poverty line.

In fact, this youth unemployment and poverty (as well as inequality) is the underlying real power that brought Abiy to the top job in the country. The question is will he be able to address them? Not really, at least not in the short run, because it requires re-orientation of the growth policy towards inclusive job-intensive sectors and raising productivity in agriculture, which cannot be done in a short period of time.

The nature of growth and inequality
In my previous commentary, I argued that although the economic growth rate of the country is not as dramatic as officially claimed, it is an excellent achievement even by African standards. However, the nature of growth shows that it was not inclusive growth but growth that aggravated the gap between the rich and the poor both vertically (across individuals) as well as horizontally (across community elites).

Such inequality is a recipe for conflict as we have seen in the economic performances of various African nations. This again, is another fundamental economic issue that brought the new Prime Minister to power. Can he bring meaningful changes on this? He might, but this is conditional on the political power of the Premier and his team.

Macroeconomic management
Symptoms of macroeconomic mismanagement can be traced using various economic indicators. The first is the shortage of foreign currency. Last year, Ethiopia imported USD17 billion worth of goods and exported around USD3 billion, leaving the nation with a deficit of USD14 billion. The deficit, which is about 17Pct of the national income, has persisted for more than a decade.

The second indicator is the rising inflation that is hurting the poor while the third is a significant internal deficit: the country’s investments as a share of national income is about 40Pct while saving rate is about 20Pct (based on my calculation, saving rate stood at 10Pct of the national income).

The other economic sign that mirrors macroeconomic mismanagement is the high debt level, which stood at around 60Pct of the country’s national income. A significant gap between targets and achievement can be among the myriad indicators for the existence of a macroeconomic management problem in Ethiopia. For instance, during the first phase of the Growth and Transformation Plan, only less than a third of major targets were achieved. This shows, among other things, a serious capacity deficiency and lack of professionalism and accountability for the failure to manage the macro-economy at the National Bank of Ethiopia and National Planning Commission as well as the Ministry of Finance and Economic Development where spending without proper planning is the rule and not the exception – although political pressure and the motivation of corruption by spending might be culprits too.

The skill level in these institutions is way below that in similar institutions in Kenya, Zambia and South Africa. Providing a decent pay to hire high level experts and retain them through appropriate payment and career plan, establishing a system of meritocracy for job assignments and accountability for wrong doing are some of the crucial policy directions the Prime Minister needs to pursue in these institutions.

Poor quality of education, lack of professionalism and state capacity
My experience as a university lecturer proves how scary the deterioration of the quality of students in the last ten years is. There is a similar situation across all the education institutions throughout the country. The issue requires overhauling reforms. These include providing better incentive and career structures for university staff as well as teachers across the country. Currently, universities spend most of their budgets on building physical infrastructures and very meager resources on their human capital.

Reforming and improving the moral values of the youth from kindergarten to university can also enhance the quality of education on top of instilling professionalism in all sectors of the economy. Top positions need to be held on a basis of merit, by making a distinction between the technocrats and the politicians in all government institutions (an excellent place to learn that is Kenya).

Finally, given the alarming level of deterioration in the quality of education in our high schools, the scrapped freshman program, which used to standardize students coming from high schools that have different levels of education quality, is worth bringing back at our universities. The freshman program used to allow students to mature and offered general knowledge to all students. Common courses such as the Ethiopian economy and philosophy shouldn’t have been scrapped in the first place.

Political challenges
Can all these economic challenges be handled by a single individual or Prime Minister? Not at all! But it can be done if there is a popular support for PM Abiy when he faces blockage from established interest groups when he attempts to address each of these economic challenges. If or when he marches to address these issues he will be confronted with two fundamental political challenges.

The first challenge relates to the control of the state machinery (the security forces, the military and the bureaucracy), in the attempt of which he will be confronted with established interest groups. The second resistance is bound to come from the unemployed youth and the poor, as well as the elite, who have been denied equal opportunity so far. These are the forces that brought him to power and may turn against him if he fails to deliver to these groups what they expect from him in a year or so. Thus, his job is a difficult one and it is not an enviable place to be. It is a “Catch 22” – damn if you do and damn if you don’t from these two protagonist groups.

I hope he has the resolution to do what he promised and to realize the high expectations that he has built in his speeches. I hope the ruling party is genuinely changing and will be behind him in this endeavor. More importantly and fundamentally though, I hope the bulk majority of the citizens are behind him.

There is a silver lining in the coming of the new Prime Minister. First, those communities who felt unrepresented at the top echelons of power (knowingly or not) now may feel better. If he fails to deliver or can’t walk the talk, they may learn that the problem is not ethnic but systemic and may see their struggle in a totally different perspective – a national perspective directed at the ruling elite (or class).

Abiy brought stability and peace across the country, reversing the detrimental effect of that conflict on human lives and the economy, investment and the “rising Ethiopia” image of the country at large. Nevertheless, we don’t know for how long the stability can continue. However, his speeches across the nation signal the emergence of a new leadership willing to embrace the power of the people. If the people stay powerful and keep challenging the abuse of human and democratic rights, corruption and unfair distribution of income and opportunities, no doubt, the system will improve. If we the citizens are not behind him in this crucial period of history while (or if ) he is confronting the challenges I noted (which he should do sooner than later while the momentum for his support is still alive), it is sure that he will either utterly fail, remain inactive or resign from his post.


6th Year . June 16 2018 . No.62

Alemayehu Geda (Prof.)

is a professor of economics at Addis Ababa University. He can be reached via ag11226@gmail.com


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