Eyob Tekalign

Eyob Tekalign

State Minister of Finance on COVID-19, Economic Reforms

With a PhD in Political Economy, and Masters in International Policy earned from the University of Maryland and the George Washington University in Washington D.C, in the United States, respectively, Eyob Tekalign is currently serving Ethiopia as a state minister of Finance. Since graduation from Mekele University with a BA in Economics in 2000, he has been actively engaged in public service leadership in Ethiopia and overseas. He was a minister counselor at the Ethiopian Embassy in Washington D.C., advisor to the Ethiopian governors of the IMF and World Bank Group, and government and public affairs consultant to Dow Chemical, a Fortune 500 multinational. Eyob had previously worked for intergovernmental organizations such as the United Nations Economic Commission for Africa, the Common Market for Eastern and Southern Africa, and the United Nations Conference on Trade and Development. He had also worked for the International Finance Corporation (IFC), World Bank’s private sector financing arm.

While working at the then Ministry of Trade and Industry (MoTI), he collaborated for the signing of a Memorandum of Understanding between the Ministry and the Ethiopian Chamber of Commerce to establish the Ethiopian Public Private Consultative Forum (EPPCF), the major platform for policy deliberation between the government and the private sector. Eyob led the forum agenda from the government side. Known for his bold remarks and spelling out problems courageously, Eyob Tekalign (PhD) has always been an outspoken critic of some of the economic decisions of the Tigray People’s Liberation Front (TPLF) dominated Ethiopian Peoples’ Revolutionary Democratic Front (EPRDF) regime in Ethiopia.

Eyob is one of the few young high ranking government officials who enjoy positive remarks in Ethiopia’s polarized political atmosphere. EBR’s Tewedaj Sintayehu spoke to the State Minister on recent economic changes in the country and the impacts of COVID-19 in global economic activities.

Do you think the pandemic would lead to a paradigm shift away from neo-liberalism, globalization, export promotion and opening up the market?
I don’t think so. I think the approaches would be more balanced than a shift. On one hand, states would re-evaluate their self-sufficiency in some critical sectors. However, that should have been an important economic strategy even before the pandemic. For instance, in its bid to become food self-sufficient, a country like Ethiopia should think ahead of time not to repeat the adverse effects of delayed wheat imports because of logistics problems. In our context, we would forge ahead strongly with our ongoing reform on structural deficiencies. Globally, I think it (the pandemic) conveys two messages. On the one hand, it shows how interdependent we are. It has demonstrated that a problem created somewhere is a danger for all as it does not necessarily get contained within its original confines. States are in a state of panic. They have focused on saving lives and are generally looking inward. When this pandemic is over, however, hopefully countries get together to discuss ways of working collectively with better solidarity to ensure that the next pandemic would not be this damaging. No matter how inward looking you get, you cannot shut yourself down from the rest of the world. The international economy is very interconnected and interdependent. This reality cannot change with time. I think the legacy of the pandemic would be a more humane international system with strong solidarity among states and less self-centred approaches to prosperity.

The pandemic seems to have put a strong case against neo-liberal thoughts, for instance, as it has underscored the big role of governments in fighting such huge societal problems. It has demonstrated that governments have huge roles that go beyond contract administration and moderating business disputes. It has also laid bare the presence of issues that the market cannot answer on its own without the interference of government. Do you think such paradigms are going to suffer as a result of the pandemic?
If you are talking about the role of governments in the economy, in practice, the history of economic development of states clearly shows the meaningful roles governments have played in achieving development. Whether you go to the West or the East, the big role of governments in development is not questionable. I strongly believe that government should play a strong coordination and leadership role in the economy. I share this belief with our government. International experience also indicates the same thing. Of course, on the face of it, some attach a night watch role to government. However, in practice, governments have had strong roles in the development of states. The pandemic would reduce the rhetoric of governments with a night watch role. Toning down the rhetoric came after the 2008 economic crisis. The role of governments in stabilizing economies was there for all to see. It also demonstrated that states need strong governments. However, this does not mean that the organization of the forces of production would change to state ownership.

Is there any chance, though, that a retreat to the centre from the liberal right sided status quo could happen? Some argue that the U.S government had to acquire shares for the subsidies it provided to the multi-national companies in trouble during the 2008 economic crisis. That could have drawn the system to the centre as the government would partly own those companies.

Yes. For instance, the French are stating that they would take every measure to make sure that they do not lose ownership of key strategic assets; even if that means nationalizing them. That kind of rhetoric is bound to rise. I think governments are going to ensure national ownership of key strategic sectors. That is the effect of the pandemic.

The point people repeatedly misrepresent and I wanted to underscore was that the depiction of the role of government in the economy as a new phenomenon is inaccurate. The role of government in economy was huge and it will continue that way. There is no question about that. If you consider the Ethiopian government, it is playing a strong coordination role. We are talking about development projects and building special economic zones. This doesn’t, however, mean that these measures warrant the effective thriving of the private sector. All it means is that the government would play an effective coordination role while the way the economy is organized promotes the effective thriving of the private sector.

With the COVID-19 pandemic expected to set in motion an even bigger international economic crisis than the 2008 crisis, the sovereignty of states could be at risk as they could default to their creditors. Are the coronavirus induced economic problems a threat for Ethiopian sovereignty?
This is also a serious threat. It won’t be surprising if countries with big debt burdens and those that have not managed their economies properly were confronted with this problem. Had it not gone through a reform, Ethiopia would inevitably have the same fate. Fortunately, the macro-economic reforms we have undertaken over the past couple of years have helped us afford a fiscal breathing space and restructure our debt burden. Therefore, Ethiopia is definitely not faced with a threat to sovereignty that stems from economic problems. The reality is that Ethiopia has gone beyond its own problems to coordinate the efforts of African countries to minimize the effect of the pandemic on their economies. As to Ethiopia specifically, there is no threat whatsoever to its sovereignty. In fact, we are in a really better bargaining position nowadays. We use this as a rude awakening to invest more in critical areas.

Couldn’t the adoption of a very flexible exchange rate during the latest IMF Article IV conversation be considered as an instance of the threat to Ethiopia’s sovereignty?
Our stance is that one time big devaluation is not right. Our fact statement indicates that one time big devaluations, like the one that took place a few months before the change, are not effective. Devaluation alone cannot solve the problems of the country. We should look at general structural problems. Unless we carry out a reform that resolves the structural deficiencies in the economy, pricing alone cannot have a comprehensive effect. Without a significant increase in production and productivity, adjustments in exchange rate cannot improve exports. Productivity is a major pillar of our reform. Parallel with those efforts, the way we manage our foreign exchange needs to be overhauled. The administrative gap needs to be bridged along with demand and supply side problems.

We have set out to overhaul our macro-economy; that means we need to modernize our monetary policy and we need more prudent fiscal policy. However, the focus of these moves should be mainly on productivity. With the path we have pursued, significant increases in agricultural productivity would widen the export basket as new agricultural products would be up for export. For instance, Avocado is set to overtake coffee as the bigger export product in the coming two years or so. Import products such as edible oil are set to be fully substituted in a year’s time. It is through such measures that the macro-economic problem will be tackled and not through mere devaluation. Therefore, let alone support it, we strongly reject the notion of devaluation as the way out.

Countries have resorted to amend their policies in response to the pandemic. With international financial organizations such as the IMF and the World Bank influencing policies through their policy recommendations, states were under pressure to adopt certain types of policies. Could this sense of independence go a long way for them to mark their own territories in the future?
In Ethiopia’s context, to be honest, the role of the IMF and the WB is overrated. It all depends on the strength of countries. If you can identify your priorities, articulate them and have the capacity and readiness to defend them, the pressure is very miniscule. That means the pressure depends on your internal strength. In our case, for instance, the detailed inspection of our economy and the bold identification of policy ideas has enabled us defend it at any level. We would, therefore, reject any different ideas from any organization.

Of course, these organizations have been involved in helping us achieve our own policies. They are in no way undermining our efforts. For instance, the quick response from the IMF to our Coronavirus mitigation efforts is admirable. The way they went on to address issues of money and economic resilience is unheard of. That might be a result of the leadership change in the organization but it shows that the organizations are involved in mitigating the problems. The thing we have noticed is that if you know your priorities and you can defend them, everyone will line up behind you.

The Ethiopian government’s decision to adopt a flexible exchange regime during this year’s IMF Article IV conversation is considered by experts as surrendering to the international financial organizations. How do you rationalize the move?
The reason I think the move is feasible is that the economy has to keep on growing. For that to happen, its shortcomings have to be addressed. Its main shortcoming is the macro-economic imbalance. That problem needs to be addressed no matter who recommends it because leaving the issue as it is could lead to financial or even economic crisis. So we analysed the issue and decided to address it. Secondly, we are talking about sustainable economic growth and identification of new sources of economic growth. This is not IMF’s language. We are saying that the source of growth should widen. The source of growth hanged on a sector. Now, we are talking about digital economy, fresh approach for the tourism sector and revamping agriculture. We are rooting for more productivity in the agricultural sector and integrating it with the manufacturing sector. In a couple of months, we will launch an edible oil belt in Gojjam with the capacity to produce more oil than Ethiopia demands. Edible oil for export is in the pipeline. So, we are talking about import substitution and new sources of growth. These things have never been in IMF’s vocabulary.

However, getting the international financial organizations to stand on our side and support this comprehensive reform focusing on sectors, incorporating macro reform and seeking to resolve structural problems is an indication of the strength of our policy. That is how I see it. We didn’t buy into the floating exchange you raised earlier. We are saying that overnight devaluation or floating is not the answer; we don’t need it under the current context. In fact, it shows that we have a leadership that is capable of rejecting IMF policy recommendations. The economic distortion, including the forex shortage problem, should, however, be resolved. The adverse effects of these problems are there for all to see. Everyone can see the damage the inflation, caused by the economic distortion, is doing to the poor. Correcting these problems is our duty but it should be in our own way. Focusing on productivity and bolstering our exports, the reform has to be comprehensive.

Prior attempts to devaluate the exchange rate overnight did not work. In fact, it was back then that the recommendations of the IMF were adopted; but they did not work. Our approach rejects that approach as it is comprehensive and gradual. If one cannot see the home grown aspect of these approaches, they have not read the economic fundamentals. I can tell you that ours is the most sensible approach. The medicine for one sector should not have an adverse effect on others; the comprehensiveness of our approach ensures that.

But the IMF granted the government three billion dollars in three years because it agreed to adopt a flexible exchange rate. Doesn’t Ethiopia’s acceptance of a flexible exchange rate need to be implemented within a definite period of time?
That is not the case. You mixed up some facts about the home grown reform with that of efforts to finance it. In formulating our reform, we drafted structural and sectoral reforms in a comprehensive manner. These reforms have to be financed. To do that, we pitched it to local and international partners. The partners started responding and we raised USD10 billion. The three billion dollars you raised was only a component gained from the IMF. We managed to raise the full amount of the finance needed to implement the reform. When we designed the program, we attached a time frame and cost to it. The partners considered the ideas we pitched and agreed to finance it.

Professor Alemayehu Geda, in his recent article on the impacts of COVID-19 on the Ethiopian economy, noted that debt servicing needs to rescheduled or cancelled. If not, our debt would surge from 26Pct to 38Pct of the export of goods and services, forcing the country to default to its creditors. What changes are there with regard to debt servicing?
Regarding debt servicing, the Ethiopian government has mobilized African countries to put pressure on creditor countries to cancel debt. Our Prime Minister has assumed the forefront position as the voice of Africa. As we raised earlier, the issue poses a threat to sovereignty; therefore, we are going to push forth with ongoing efforts to realize our interests as well as those of the rest of Africa. Even through difficult times, Ethiopia has never had problems of servicing its debt. We are principled about servicing of our debts. Through our reform, we are working to change our status from the current high debt stress situation to medium debt stress in the next two years. Our decision not to take commercial loans is one of the components of this effort. We are focusing on concessional loans. The second component has to do with bolstering our export capacity. When you talk about debt servicing, the biggest variable that is in trouble in our country is export. We intend to revamp export because that allows us lower the percentage of debt servicing to the volume of exports. So, I agree with the analysis that Ethiopia needs to focus on lowering its percentage of debt servicing to exports. We don’t concur with the argument that Ethiopia’s sovereignty would be threatened, however, if debt cancellation cannot be realized today. Debt servicing can prove to be challenging and it might be constraining. It is also morally wrong to pay for debt payment when there are critical and emergency matters that need urgent attention. The Paris club has, for instance, decided on a debt standstill for the coming nine months. Although that is a measure in the right direction, it is not enough. That is how we see it.

You earlier stated about import products being substituted by local products. Such a trend has become part of the international response for the COVID-19 pandemic. Does that mean Ethiopia’s export promotion policy is set to be replaced by import substitution?
No at all. It shouldn’t be changed and it won’t be changed. One major point most people miss is that a dollar you get from export and a dollar you pay for imports is of equal amount. A major problem of our policy was the problem with the identification of which products to substitute and what others to export. What we are doing now is clarifying this mix up. We are identifying the sectors to prepare for import substitution and those for export promotion. In Ethiopian context, importing wheat is no way justifiable. With all this arable land and productive population, the practice should not be allowed to go on. Export is also very important though. Therefore, we need to balance them as we forge ahead into the future. That sharpens our industrial policy.

So, which sectors are identified for import substitution and which are left for export promotion?
In agriculture, for instance, horticulture, floriculture and coffee are important export commodities. On the other hand, critical food items including edible oil and processed foods such as juice don’t need to be imported. We are establishing big agro-industrial processing zones. That allows agriculture and industry to forge a bond. There are, however, sectors that need competition. For instance, the leather industry in general should be export focused. The previous policy, however, literally killed the sector. We will expose the leather industry to competition and make it ready for export. Secondly, value addition was not properly encouraged in the agricultural sector. Instead of exporting sesame, exporting a small amount of its processed version captures more value. We are trying to do that. The list goes on.

The bureaucratic machine seems to have become more efficient in its response to the pandemic as there are better efforts in coordination among the offices and social mobilization. That aspect mimics a war economy. Do you think this revamped activity can be a launching pad for a post COVID-19 strong economic performance?
The question has two sections within it. The first one inquires if this is war. This is war; no war gets worse than this. As we have seen in other countries, the pandemic is a severe war that deprives people not only of their lives but also of the dignity of a proper burial. It is a pandemic with as much negative impacts on the economy as its adverse effects on public health. In our context, we have to be careful not to lose the reform gains we worked so hard to realize. In that sense, our activities are mobilized and coordinated as if we were at war.

The other aspect of the question has to do with the silver linings. The pandemic’s silver lining is that it has given us back our sense of humanity. I think it has made the rich who dine on five course meals to be concerned about their neighbours who don’t have a meal on their tables. That sense of solidarity and community has a huge value. It has also demonstrated how strong we are when we stand together. So, going forward, we need to strengthen the trend.
After the reform, there were instances of such solidarity even before the pandemic. For instance, Ethiopians in all directions went out to plant four billion seedlings last year. That is difficult to forget. That showed our mobilization capacity. Development is a collective enterprise; therefore, sustaining and strengthening such efforts goes a long way towards ensuring growth in our country.

Last remarks?
I honestly see that we are going to be a breakthrough country. If we can manage to mobilize the people and push forth with these reforms, I see a major breakthrough coming up. Ten thousand farmers in Oromia region received investment licenses recently. Farmers in Amhara region follow that trend. This shows that there has been an economic revolution taking place. An economic growth that doesn’t benefit and engage the people is pointless. Currently, we are on a very promising economic trajectory that takes into account Ethiopia’s potential. Watching the people reap the benefits already and ensuring they are engaged is a great promise for what lies ahead. So, I just want to call up on all stakeholders to see this. We have the opportunity to make this country an economic breakthrough. Let’s work to make that a reality. EBR

9th Year • Jun.16 – July.15 2020 • No. 87


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