The High Cost of Beauty
Ethiopia’s Economic Dilemma
Addis Ababa’s ambitious beautification projects have undeniably transformed the city, creating a more visually appealing urban landscape. Yet, these aesthetic improvements raise critical questions about their economic feasibility and impact on the city’s residents.
While the gardens, pedestrian walkways, cycle lanes and recreational centres undoubtedly enhance the city’s quality of life, they come at a high cost. With soaring inflation, poverty, and a struggling economy, allocating a large amount of resources to such projects raises concerns about their prioritization. Critics argue that investing in the economy’s productive sector is more crucial to addressing supply-side constraints that have plagued Ethiopia for decades. City residents also ask about the fairness of the running water shortages in many neighbourhoods while the city greening projects enjoy all-day watering.
The question becomes: Is the pursuit of beauty at the expense of people’s basic needs? Many small businesses, particularly those operating in the informal sector, are already struggling to survive. Beautification projects have displaced such businesses in many places, further exacerbating their economic hardships.
As Ethiopia transitions towards market-driven policies, the prioritization of grand projects will face increased scrutiny. That’s why finding a harmonious balance between aesthetic improvements and economic development is crucial. While enhancing the city’s appearance is desirable, it should not come at the cost of the people’s livelihoods or the overall economic well-being. A balanced approach to urban development is critical.
The challenge lies in ensuring that beautification projects enhance the city’s appearance and contribute to its economic growth and development. These projects can stimulate economic activity and prosperity by incorporating elements that support local businesses, create jobs, and improve infrastructure.
EBR’s Munir Shemsu navigates the city-wide renovation projects and spoke with small business owners and economists to understand what needs to be done to balance aesthetics and economic viability to make Addis Ababa more beautiful and prosperous.
Dozens of eager shoppers were climbing over each other in a small, crowded clothing shop around the famous Mexico roundabout in Addis Ababa. Yet, the shopkeepers in their late 20s appeared unfazed by the seeming abundance of customers, as if it was just another day of business. Mohammed, an employee and cousin to the owner, reveals the secret behind the influx of customers.
“The entire shopping Centre is getting demolished,” he told EBR.” It is a clearance sale.”
Just a few days later, hundreds of shops in the heart of the capital were pulverised to make way for the city’s famous corridor development project.
Over the past few years, Addis Ababa has undergone a thorough aesthetic revival to become an eco-friendly, ergonomic smart city. Spearheaded by Prime Minister Abiy Ahmed (PhD), a string of recreational parks, museums, and corridor developments has transformed massive slum sections of the city.
While the early pet projects overseen by the Prime Minister signalled an affinity for greenery and natural settings, few could foresee what lay ahead.
Almost a year into Abiy’s ascension to power in 2018, he opened the 130-year-old grand palace (The Menelik Palace, also known as the Imperial Palace, built under Emperor Menelik II and rests on 40,000Sqm of land) to the public following millions of dollars in renovation sourced from private funders, the Emiratis. Half of the nearly 40-hectare space, now fitted with a zoo, museum, botanical gardens and recreational areas, was open to visitors for tickets priced as little as five birrs. A holding public corporation dubbed Unity Parks, along with the citywide recreational development project, the riverside project dubbed Beautifying Sheger, with 28 billion birr capital, has been formed through a Council of Ministers’ regulation to administer the Science Museum, Friendship Squares 1 & 2, and a parking building all located stone throws away from the palace.
About a year after Unity Park was opened to the public, the PM unveiled the Entoto Natural Park on the capital’s northern outskirts to significant public adoration. The corridor development project which covers a massive portion of the city is financed by the city government and entirely constructed by local companies. This project has received substantial public adoration. The Beautifying Sheger Project, which has higher quality precision of finishing, involved Chinese creditors. The project aims to enhance the city’s aesthetic appeal, promote tourism, and provide recreational spaces for the public, which could have positive economic and social impacts.
Since then, many similar projects with catchy names like Andinet (togetherness), Friendship, and Sheger have spawned in the capital. Expansive spaces that provide relief and respite from the harsh bustle of the city with family-centred entertainment and exercise-friendly venues have become ubiquitous.
While the source of funding and financial soundness in revenue generation has been veiled for most of the projects, some projects were direct results of foreign governments’ benefits.
Restorations of the Jubilee Palace, built in 1955 to mark the Silver Jubilee of Emperor Haile Selasie’s reign, through over 20 million Euro financial assistance from the Agence Française de Développement (AFD) and heritages sites are the most notable ones.
Critiques of the seeming prioritisation of grand aesthetic initiatives in the face of severe poverty continue, and a spike in the grandiosity of the projects amid punishing economic conditions is beginning to strike a chord.
An economist who spoke to EBR on conditions of anonymity indicated the importance of prioritisation in budget allocations. He expressed a sense of bewilderment at the feasibility of spending billions on parks. At the same time, austerity measures are an arrangement for the masses, highlighting the need for informed and informed decisions in budget allocations.
“It’s tough to argue for parks when millions are in need of food assistance,” the economist said.
He underscored the need to channel the country’s limited financial resources towards projects and systems that maximise revenue. The economist referred to underwhelming agricultural productivity, fledgling exports, and conflict-damaged health infrastructure as areas that require significant capital allocation.
“Basic needs are the dominant priority for the majority of the populace,” he noted, emphasising the need for empathy and concern for the welfare of the country’s population.
A recent report by the World Food Programme estimates that over 20 million Ethiopians need emergency food assistance while nearly four million people are internally displaced. The UN Office for the Coordination of Humanitarian Affairs (OCHA) estimates that 4.5 million people are displaced in rural and urban locations, mainly in the Somali, Oromia, and Tigray regions.
However, neither critiques by economists nor admonitions by parliamentarians have slowed the pace of these projects.
During a parliamentary session to review and approve last year’s budget of 801.6 billion Birr, opposition MPs teased the idea of conducting audits into the PM’s pet projects. Legislators, primarily from the National Movement of Amhara (NAMA), voiced concerns over the source of funding and expenditure.
After indicating that the UAE, China, and France had financed projects such as Unity Park, Friendship Park, and Jubilee Palace renovation, the PM waived further inquiries with witty remarks.
“We will buy you tickets,” Abiy said, referring to the parliamentarians to visit the funder countries.
Nevertheless, the seething curiosity over the PM’s closely guarded projects has festered further.
Chaka Project, another massive project currently being developed, is shrouded in secrecy in the Yeka Mountains (another northeaster outskirt of the city with dense natural forest) and has steered significant controversy. Initially speculated to be a grand palace construction, the project has evolved into a much grander ambition in the form of a satellite city. The project’s primary features include artificial lakes, housing projects, recreational areas, and sporting avenues. The reported cost of the project, nearly 600 billion Birr, has further fuelled inquiries into its feasibility and funding sources.
Artificial lakes, housing projects, recreational areas, and sporting avenues have since been confirmed as their primary features. Responding to parliamentarians’ inquiries last year, the PM suggested that the project’s cost was nearly 600 billion Birr, which would account for three-quarters of the federal budget from the previous year. Instead of easing concerns over the project’s feasibility, the reported cost has further fuelled inquiries.
Many are concerned about the federal government’s simultaneous promulgation of austere fiscal priorities and tightening monetary policy.
The recently ratified federal budget of 971 billion Birr, later bolstered by 550 billion Birr following an overhaul of the exchange regime, reveals exciting trends. A 104 billion Birr allocation indicates a significant priority for urban infrastructure and construction, while agriculture received nearly a quarter of that figure.
While concentrated investments in health and education are generally considered prudent for promoting human capital development and long-term economic stability, the budget unsurprisingly is preoccupied with debt servicing.
Following a fiscal year in which Ethiopia defaulted on nearly 33 million dollar coupon payments for a decade-old Eurobond; debt servicing swallows 139 billion Birr, 9.13% of the augmented budget for the year. Forecasting a budget deficit of nearly 358 billion Birr, which accounts for 23.5% of the latest budget, requires a delicate calibration of expenditure priorities.
Leading up to the ratification of the budget, State Minister for Finance Eyob Tekalign (PhD) recommended strict control on institutional expenditures. He even noted the need to reform legislation regarding the right of compensation for projects to enable proper fiscal management.
Nonetheless, cascades of projects seemingly pinned on increased income from tourism and services in the form of museums and bike lanes could raise eyebrows. The massive corridor project snaking through the capital could be cited as one such endeavour.
The project’s iteration, nearing completion, included 100 km of bicycle lanes, 96 km of pedestrian walkways, around 120 public toilets, 400 building renovations, and nearly 70 public parks for close to 35 billion Birr. The city Mayor announced the project’s second phase last August.
If financed primarily through public revenue from an economy balancing a tax-to-GDP ratio of around seven per cent, concerns over fiscal priorities could ring even louder.
Heavy investments in urban aesthetics are a lingering feature in a year when inflation is forecasted to grow in the aftermath of the floated Birr.
Ethiopia’s agreement to an economic reform programme prescribed by the International Monetary Fund (IMF) to restore macroeconomic stability introduces a peculiar, if not conflicting, dynamic.
Monetary tightening and prudent fiscal management were cited as fundamental features of the reform programme to keep inflation at bay. Tightening macroeconomic policies marked by removing subsidies, decreased capital expenditures and reduced economic credit are critical hallmarks of the programme.
A shift towards a market-driven economy, market-determined exchange rates, interest rate-based monetary policy, and liberalised trade and banking sectors are new winds that could require a different sailing strategy.
Ethiopia’s economy, which has historically relied on significant state involvement to achieve remarkable feats of growth in the early 2010s, will have to adapt dynamically. While Ethiopia’s current economic chieftains have disavowed commercial loans over the past five years, an external debt of nearly 28 billion dollars (almost half to China) has put a limp in their strut.
Heavy infrastructure investment, primarily funded by Chinese loans under the developmental state model, meant roads, universities, railways, and substations were part of the country’s economic recipe for nearly two decades. Despite the dip in Chinese credit to mega infrastructure projects for African countries in recent years, China still managed to fork almost 250 million dollars for the Beautifying Sheger initiative.
Regardless of the project’s economic feasibility or the aesthetic heights it manages to attain, reflecting on the experiences of other African countries that borrowed heavily for inadequately thought-out mega infrastructure projects provides some cautionary insight.
Mozambique, a nation registering seven per cent real GDP growth in early 2000, borrowed heavily from Chinese creditors for massive infrastructure projects. A 680 million dollar edifice, now ironically dubbed the ‘Bridge to Nowhere’ after managing to achieve merely aesthetic heights, hangs as a physical reminder of poor fiscal management. A tiny country with no Chinese debt before 2006 is now struggling to pay back over two billion dollars with around 11 billion dollars in reduced economic activity.
As Ethiopian finance minister Ahmed Shied recently pointed out to parliamentarians, all economies borrow money; what matters is the degree of responsibility in their expenditure habits and the terms of their borrowing.
However, the recent announcement of a special economic zone (Addis Tomorrow) precariously located several kilometres from critical logistics facilities suggests an enduring penchant for grandeur. Unsurprisingly, Chinese contractors are building a 35,000 sq. behemoth poised to host residential buildings, malls, and recreational centres, among other facilities.
Despite the federal budget’s inability to allocate more than 22 billion daily meals to university students or launch new capital projects, it manages to spare little as it apportions to palaces and parks.
Budget allocation priorities will become more significant as Ethiopia’s economy shifts to more market-determined models. The days of the federal government printing money to finance its every construction impulse seem to be in their final hours, as the number dropped by nearly 100 billion Birr in a year. Even mandatory bond purchases by commercial banks amounting to a fifth of their total loans in a year appear near an end, as the central bank opts for interbank markets and open market operations to manage liquidity.
In this cocktail of policies that is unmistakably neoliberal in flavour, market forces will punish poor decision-making with harsher blows than the Ethiopian has historically known. Groups of political appointees will not escape the moral hazards of mismanaged finances as the resilience of the economic infrastructure becomes predicated on its attractiveness to international capital.
Government securities set to be traded in Ethiopia’s second attempt at capital markets over the coming months will be priced according to the issuer’s estimated financial soundness. Economists say fluctuating tick sizes on exchanges gauge an economy’s health. In this unfurling economic horizon, fiscal priorities must be rooted more than ever in the feasibility and soundness of long-term economic expenditures.
As the IMF programme indicates, heeding prudent fiscal management recommendations might entail revaluing expenditure priorities. The drippings accumulated from slashing capital expenditures could be channelled towards less glitzy and grittier projects. Catering to imminent and unforgiving needs might best cultivate a sense of ownership of these aesthetic delights among the public.
Countries often grapple with where to direct their economic focus in today’s global economy. Factors such as historical context, resource availability, comparative advantage, and strategic goals all shape a nation’s priorities. Specifically, some nations prioritise agriculture or manufacturing, while others emphasise the service sector. Ethiopia has recently invested significantly in tourism development to strengthen its competitiveness. However, this decision raises concerns about the country’s economic priorities, particularly in light of its underdeveloped agriculture and manufacturing industries and on-going peace and security challenges.
Historical factors, including a country’s longstanding traditions, can significantly influence its economic focus. For instance, nations with a rich agricultural heritage may continue to prioritise this sector, while those with an industrial background may emphasise manufacturing more. Additionally, the availability of resources plays a crucial role in shaping a country’s economic direction. Nations rich in natural resources may focus on extractive industries, while those with more limited resources may prioritise sectors that require less capital investment, such as services.
Moreover, a country’s ability to produce goods and services at a lower opportunity cost than other nations, known as comparative advantage, also impacts its economic priorities. Countries can maximise their financial efficiency and trade benefits by specialising in sectors with a comparative advantage. For example, a nation with a skilled workforce and advanced technology may focus on manufacturing, while a country with a unique cultural heritage and beautiful landscapes may prioritise tourism.
Strategic goals can further influence a country’s economic focus. Some nations prioritise sectors crucial to their national development, such as infrastructure or technology. Others may focus on industries that can help alleviate poverty or create job opportunities. In the case of Ethiopia, the decision to invest heavily in tourism development may be driven by a desire to diversify the economy, reduce dependence on agriculture, and generate foreign exchange.
Despite the potential benefits, Ethiopia’s focus on tourism development raises concerns about the country’s broader economic needs. The tourism sector is susceptible to external factors, such as political instability and economic downturns. Considering the country’s underdeveloped agriculture and manufacturing sectors, a more balanced approach may be necessary to ensure sustainable economic growth.
Furthermore, Ethiopia’s on going peace and security challenges pose significant risks to the tourism industry. While the government is working to improve the security situation, the perception of instability can deter potential visitors. Addressing these challenges is crucial for the long-term success of the tourism sector.EBR
12th Year • September 2024 • No. 133