Pandemic Defying Job Creation, Buy It Anyone?

The Ethiopian Job Creation Commission along with other research institutions predicted during the onset of the Coronavirus pandemic in Ethiopia that the health problem would end up slashing 1.5 million jobs in a few months. Fast forward a few months and the commission has announced that the governmental goal of creating three million jobs has been achieved. Some experts and citizens interested in the matter have all be surprised by the report. Kiya Ali looks into the matter.

Like a sizeable number of Ethiopians running small businesses, Mubarek Sultan has immensely been affected by the impact of COVID-19 in Ethiopia. Breadwinner of his family, Mubarek is a father of two. With a lot of perseverance, he managed to become a small business owner two months prior to the advent of the Coronavirus pandemic in Ethiopia. Unfortunately, COVID-19 disrupted his business activities and derailed his plan. “I opened a hair salon for women with a startup capital of ETB150,000. So, in addition to becoming self-employed, I created job opportunities for three people. When the Coronavirus pandemic made a landfall in Ethiopia, however, almost all of our clients stopped coming to our hair salon in fear of contracting the virus,” he remarked.

Until the end of June, Mubarak was struggling to survive and stay in the business. As an initial cost reduction strategy, he started paying his employees half their salary. “I did this with their consent and negotiation. Instead of shutting down the business, I decided it was better to continue to stay open by applying all possible protective measures. However, most people were afraid of going to beauty salons. So, we couldn’t generate enough income to stay afloat. As a result, we were forced to shut down,” Mubarak stated with visible signs of sadness on his face. The major reason behind Mubarak’s decision to close down was the inability of the business to cover rental cost. “There were times that I skipped meals. That has now become more frequent. After closing down my business, I’m now trying to get another employment opportunity,” he stated with despair.

Mubarak is not the only one who has lost his job in 2019/20. Following the outbreak of COVID-19 in Ethiopia, there has been a clear business slow down with people in the hospitality, tourism and entertainment sectors bearing the brunt of a dry spell both at national and international level. Hotels, night clubs, tour operators and theaters have all been practically out of business since March, 2020. As a result, a considerable number of people working in these lines of businesses couldn’t make money for months. For these businesses and numerous others engaged in other sectors, staying afloat has been the major goal. Therefore, expansion of businesses and creating additional jobs were not the main concern.

As a result, announced the Ethiopian Job Creation Commission at the end of July, 330,000 jobs were lost during the past Ethiopian fiscal year. In its April, 2020 No. 85 edition, EBR reported that over 14,000 employees were furloughed from industries inside Hawassa Industrial Park alone as the global supply chain of textile crumbled with orders from all over the world suspended as a result of the pandemic. Cepheus Capital predicted back then that the pandemic could result in job losses of as much as 1.5 million workers. According to The Reporter, the commission also made the same projections as it stated that out of the seven million jobs created within the manufacturing, construction and services sectors, close to 1.5 million jobs could have been lost in just the first three months of the COVID-19 pandemic. With proper physical distancing measures in place, continued the report, both the manufacturing and construction sector alone could have seen a 1.1 million job losses.

The number of jobs the commission reported as had been lost during the entire fiscal are far lower than the projected number of jobs expected to be lost in the first three months of the pandemic. As if the disparities were not difficult enough to swallow, the Job Creation Commission went a step further away from our expectations and announced that the governmental plan to create 3 million jobs the past fiscal year has been achieved with 330,000 jobs created on top of the 3 million target. The commission reported that the pandemic claimed the 330,000 jobs that went beyond the projected number of 3 million. The gloomy projections the commission itself and other research institutions came up with seem to have made it difficult for some experts to easily internalize the 3 million plus jobs created narration, especially considering the long tradition of cooking numbers by Ethiopian governments.

One of these experts is Ayele Gelan (PhD), an economic researcher with more than two decades of experience. He insists the favorable condition to create jobs has been affected by COVID-19. “It is extremely unlikely that businesses retained existing jobs, let alone created new ones. The size of Ethiopia’s labour force (employed plus unemployed) was around 54 million in 2019. Three million additional jobs translate to a 5.6pct increase in new jobs created. That is simply impossible. Nothing new; the authorities seem to have trouble with numbers as they utterly lack a sense of proportion. If Ethiopia’s employment contracted only by 5.6pct, on the other hand, then that would mean a considerable achievement given the national and global economic environment,” Ayele elaborated.

Abdulmenan Mohammed, London based financial expert, is another scholar who expressed his concern about the authenticity of the numbers. In a written response to questions forwarded to him by EBR, he pointed out that the numbers are ‘mostly doubtful’ although he chose not to delve into the matter.

Unemployment is one of the major macroeconomic problems around the globe. It is a problem for both developed and developing countries. However, it’s impact and intensity differ between developing and developed countries. In developing countries like Ethiopia where there is high population growth and deep poverty, the impact of unemployment is significant. Unemployment affects household income, government revenue in the form of tax, education exposure of children, nutrition, dependency ratio, health, gender balance and the like. This will, in turn, affect economic growth and development of the country. Moreover, it causes a waste of economic resources such as the productive labor force and affects the long run growth potential of an economy. Unemployment also has a potential to give rise to private and social problems in the society such as increased crimes, suicides, poverty, alcoholism and prostitution, according a study conducted by Abebe Fikre.

With such far reaching problems associated with the problem of unemployment, keeping the data as accurate as possible plays a key role in understanding the depth of the problem and designing plans that would carve a path past the troubles. Governmental offices need to work hard to dig up their credibility levels that are currently buried deep under a concrete topping.

With inflation rates going skywards, some experts argue that the unemployment problem worsened by the Coronavirus pandemic could be exacerbated by efforts to control the inflation rate. According to the latest report by the UN, in the worst case scenario, the inflation could go as high as 40pct. But Ayele disagrees. He said inflation and unemployment tradeoffs are things of the past. “The world has gotten used to stagflation, a phenomenon of both occurring simultaneously and moving in the same direction starting from the 1970s oil crisis.  That has made economic policies much complicated. The one bird, two stones logic does not apply any more. Government policy needs to target both separately,” he argued.

Abdulmenan saw the combined effect of the problems. He stated: ‘The 40pc is under the worst-case scenario. Even under the likely scenario, the inflation will be 30pc, which is still very concerning.  Economic slowdown due to political instability and COVID-19 combined with high inflation will make the cost of living unbearable, especially for the lower rung of the society in urban areas.’ To keep the situation under control, he advised: ‘in the monetary policy sphere, tight monetary policy and halting the depreciation of the birr is essential. What is crucial is increasing the productive capacity in agriculture and consumer goods sectors. Furthermore, the government should bring political stability back so that the economy functions smoothly.’

To avert the looming danger associated with unemployment and other socio-economic problems that raise the desperation of citizens, the experts have recommended some measures to be taken. Creating new Small and Medium enterprises (SMEs) in rural as well as urban areas and providing them with support is one of the policy interventions that would promote entrepreneurship, according to Ayele. “There is a misconception that SMEs are urban. A wider definition is required for Ethiopia, and it should include rural business – both on and off farm business. Rural households are engaged in varieties of non-farming activities. These activities have a great potential to keep the rural youth with their families and ensure their employment,” Ayele remarked.

For Samrawit Fikru, the founder and CEO of Hybrid Design – the company running Ethiopia’s most popular taxi hailing app ‘Ride’ – tackling the problem of unemployment is about creating favorable condition for entrepreneurs and supporting startups through their rugged path to becoming self-sustaining.

Abdulmenan’s approach to tackle unemployment involves encouraging labor-intensive manufacturing, activating the construction sector, and supporting self-employment in micro and small businesses. He accords special emphasis to small towns across the country where youth unemployment is increasing and leading to migration to the capital. He argues that the concentration of most investment activities in certain places, mainly the capital, should be evened out across the major cities in the country to create a balanced situation and reduce the pressure on the capital. Once again, he considers restoring political stability and boosting investors’ confidence as the most crucial moves.

The experts also have differing views in terms of prioritizing sectors to propel the employment capsule. Ayele recommends agriculture as the first policy intervention sector. ‘In the first instance, job creation in agriculture is vital. Then come light industries and finally large enterprises. Apparently, we have approached it from the wrong end, targeting to solve all problems by attracting FDI and large foreign firms. Everything has fallen on its head. We have to rethink, and start all over again,” he concludes.

Abdulmenan, on the other hand, thinks housing has a great potential in revamping employment. Considering the huge demand for housing across the country and the capacity to employ large number of people, the house building sector should be focused. This sector creates jobs for the skilled, the semi-skilled and the unskilled in large numbers. Engaging small investors, without compromising quality, across the country will create big number of jobs, he concludes.

9th Year  August 30 – September 30 2020  No. 90