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The 30-year-old Derbe W. Tensay would not mind doing
any kind of job so long as it brings additional
earnings to his family. Employed as security
personnel in a federal agency whose branch is
located in the thriving town of Adama (Nazareth),
98Km east of Addis Abeba, Derbe is paid a monthly
salary of 500 Br (close to 55 dollars), average pay
for a civil service employee.
This is hardly enough to support his family. If it
was not for the pathetic rent of 1.50 Br for a six
square metre house he rented from Kebelle 11 and
free schooling to his children - Bezuye (14) and
Sentayehu (eight) - life would have been tougher
than it already is. Almost half of his salary goes
to pay for 50Kg of second grade teff the
family consumes; not to mention the 70 Br he
pays every month for kindergarten at St. Joseph
School, where his four-year old son Yohannes goes.
The mud house Derbe’s family rented surprisingly
accommodates all five in the family with a bed and
buffet inside. Come night time, all the children are
forced to sleep on the floor, pushing the 14’ colour
TV and the DVD player put on top of it aside. His
wife, the 25-year-old Workenesh Hailu, cooks in a
shanty makeshift on the left side of the house,
while the latrine, a bit far on the right side, is
built of bricks; it has a shabbily covered door made
of corrugated iron-sheet. The family has no other
choice but to use a plastic bathtub inside the
house, for they have no shower or bathroom.
The family’s entire income, solely earned by Derbe,
is spent on foodstuffS, compelling Derbe to look for
other alternatives. He leased a Singer and sews
worn-out clothes for clients in the neighbourhood,
while he often does labour work readily available in
this fast growing commercial town. Once a month, on
payday, he ensures that the family eats meat, thus
breaking the monotony of having Shero on the
table.
“Life has come to be too expensive,” said Derbe, who
also supports his 64-year-old father who lives in
one-room mud house next to him, and his 14-year old
brother. “We struggle to survive.”
Such is the plight millions of Ethiopians are waging
to overcome deprivation. Nevertheless, Derbe’s
family does not live an all too bad life, although
not in plenty. Its annual income of 650 dollars is
six times larger than the nation’s gross domestic
product (GDP) per capita of 160 dollars recorded
last year, significantly up from 98 dollars three
years ago.
A projection made by The Economist’s yearly
book, “The World in 2008”, puts this figure at 229
dollars for the coming year, portraying a positive
outlook for the economy. Indeed, Ethiopia is one of
the 11 African countries profiled in the Middle East
and Africa category, with a GDP growth forecast of
eight per cent, only superseded by Angola’s 21.1pc.
The EPRDF-led government is more ambitious. It has a
goal of putting the country into the category of
middle income countries in two decades; this, the
Revolutionary Democrats argue, is an attainable goal
whose start in the past four years has been proven
to be promising.
For someone like Derbe, who is familiar with the
concept following what the government says on the
state media, this simply involves a level of
economic growth that provides a job for every
jobless citizen and more pay to those already
employed.
Mathewos Selato, 55, is also familiar with the goals
set by the government; he heard it from the state
media and often as a subject of conversation in
staff meetings at the Awassa Teacher’s College,
where he has worked since 1980. He serves in the
record department, earning a monthly salary of 885
Br, a little over 90 dollars. Mathewos strongly
believes that what the government seeks is within
reach.
In its simplest form, being in the middle income
group is to join a family of nations whose GDP per
capita reaches close to 1,000 dollars. These include
countries such as Pakistan (940 dollars), Vietnam
(953 dollars) or Uzbekstan (847 dollars). A country
may have a huge economy, such as China’s close to
four trillion dollars in GDP, or the United States’
(US) 14.4 trillion dollars. But none of these
countries have as high a GDP per head as Norway’s
90,180 dollars, although its economy is sized at 426
billion dollars. China’s GDP per head is 2,960
dollars, while in the US it is 47,330 dollars,
according to a projection made by The Economist’s
“Year Book”.
Ethiopia’s joining the middle income group is what
many would agree is possible. Eleni G. Medhin, who
has done her doctoral thesis in applied economics
from Stanford University, California, is one of
them. She sees a promising start with a resilient
economy following the Ethio-Eritrean War and the
subsequent famine in 2003. She told an audience two
weeks ago, in a discussion held at the Africa Hall
of the United Nations Economic Commission for Africa
(UNECA), GDP is growing by an average of 10pc,
business and investment are expanding, and “more
Ethiopians are employed than ever before”.
But she would like to see more change in the economy
should the country achieve what the government has
set out to do: there should be structural
transformation of the economy from an agrarian and
subsistence form to a diversified, industrial and
service base. More importantly, there should also be
a demographic transformation among 80pc of the
population from subsistence agriculture to
non-farming employment.
“Broadly put, what we are trying to achieve is
moving out of agriculture,” said Eleni, who is also
an architect of the nascent Ethiopia’s Commodities
Exchange (ECEx).
In order to do just that, Ethiopia’s economy is at a
crossroads, according to the organiser of the
discussion, Envisioning Ethiopia, a local NGO
striving to promote informed public dialogues on
sensitive issues. There are choices to be made,
opportunities to be explored, and challenges to be
analysed.
But a business as usual attitude could do little to
speed up the current sluggish structural
transformation of both the demography and the
economy, believes Haile Kibret (PhD), an active
member of the Ethiopian Economic Association (EEA).
He argued that over half of the growth in the
economy comes from agriculture, a sector besieged by
poor productivity, less diversification, high urban
unemployment of 21pc (with the youth it goes up to
30pc) and double digit inflation reaching 16.6pc in
2006.
This is the kind of assertion that makes sense to
people like Adama’s Derbe and Awassa’s Mathewos:
Both families spend over half of their incomes to
purchase foodstuffs, with substantial sums going to
pay for second and third grade teff.
The family of Bekuma Terfa, in Kebelle 10 of Adama
town, better illustrates this dilemma of rising
costs of living. Although his family earns an income
that could be considered above the average, their
living standard is little different from Derbe’s
family.
Bekuma, 52, is a mechanic at Adama Edible Oil
Factory, paid a monthly salary of 1,523 Br.
“We all depend on my salary,” Bekume, a father of
six, told Fortune.
Five of them are in school; his oldest son, Megerssa,
19, is a second-year student at a college in Awassa,
the seat of the Southern Regional State 276Km from
Addis Abeba.
The family lives in a two-room mud house rented from
Kebelle 10, for seven Birr a month. There is a small
bed in the front room used by Megerssa, in addition
to an old and small table that also serves as a
study-table for his younger siblings - Teddy,
Thomas, Ermias and Hawii. Their youngest sister,
Beriedu, has yet to go to school at the age of four.
She is, however, the only child in the family with
the privilege to sleep with her parents on a bed
found in the inside room; all the others put the
chairs together every night and sleep there after a
mattress is put on them. They have to share the room
with a 21’ colour TV - the only symbol of affluence
- and a buffet containing household utensils.
As is the case with the family of Derbe, the Bekumas
have neither an in-house bathroom nor a kitchen;
both with makeshift structures found behind the
house.
Bekuma is very grateful to the company he works for,
though. He buys edible oil for 18 Br per litre;
between five to eight Birr less than what is
available in the market. Every year, the company
provides two-months of his salary on loan, thus
helping him to buy clothes and school supplies for
all his children, of whom four he got from his late
wife, Aster Beyene. Over half of his income is spent
on food, with teff and wheat claiming a third
of his salary.
“Life has become tough and a matter of survival,”
said Bekuma. “We try hard to maintain what we can
afford.”
This represents a contradiction for many. There is
economic expansion in the country, with the
government claiming bumper harvests that pulled
growth for four consecutive years. Not only is the
source and sustainability of this growth debatable
among policymakers and economic pundits, but rising
living costs, with the Consumer Price Index (CPI)
plateauing at 24pc in April 2007, are obliterating
individual income, particularly those with fixed
earnings made by people such as Derbe, Bekuma and
Mathewos.
This is an inevitable consequence of growth, argued
Hashim Ahmed, an economic policy analyst working for
the Ethiopian Development Research Institute (EDRI),
a state-sponsored think-tank headed by Neway
Gebre-ab, chief economic advisor to the Prime
Minister.
His study to learn why prices are going up recently
revealed the existence of parallel growth of
productivity, particularly of grains, and
consumption. At the same time, credit access to
farmers in at least four regional states has
expanded, thereby reducing distress sales.
All these are results of a major structural change
in the economy evident since 2005, according to
Hashim, a Harvard graduate in economics. And what
has never happened before has begun to emerge
lately: Increasingly, prices in Ethiopia start to
converge to global prices due to the economy opening
itself to the global system.
“It is a one-time adjustment but very painful one if
not managed well,” said Hashim. “It will become
inflationary.”
For many analysts, macroeconomic stability that
could survive the inflationary pressure, and
sustainability of the growth already registered, is
the key for the country to achieve the goal the
ruling party has set in putting the country in the
list of middle income groups. Ironically, the 10pc
average growth in GDP will not be sufficient to meet
this goal, argues Haile of the EEA.
With an average annual growth of 11pc, it will take
Ethiopia another 40 years to reach to this
benchmark, should the country fail to transform its
economic structure fast, Haile told the audience.
In the audience was Brehanu Dinka, a retired member
of the UN envoy to the Great Lakes region and
Ethiopia’s veteran diplomat who once served as an
ambassador to the UN in New York. He found Haile to
be “unnecessarily pessimistic for the future” given
that farmers will get better income; irrigation
systems are being built and infrastructure is
expanding that could surge growth.
Whether pessimistic or not, the whole idea of aiming
to join the middle income group is like going back
in the future, according to Ermias T. Amelga, chief
promoter of the Access Group, a private investment
group involved in banking anf real estate.
“We were a middle income country in the past,”
Ermias said.
In 1987, a country needed to have 480 dollars GDP
per head. Ethiopia’s GDP per capita at the time was
11 dollars more, with its 40 billion dollar economy.
Over time, two major things occurred, according to
Ermias: Ethiopia’s Birr has depreciated from 2.07 Br
against the dollar in early 1990s to a little over
nine Birr today. The benchmark for middle income
groups too is a moving target; it increased to 905
dollars.
Here Ermias sees currency at play. The current
threshold of nearly 1,000 dollars GDP per head for
middle income countries will not remain the same in
the next 20 years. If it was to increase by three
per cent, it would reach 1,680 dollars.
What size of GDP is needed to reach this level in
the next two decades and how much the exchange rate
of the Birr against the dollar will be then are
critical questions Ermias would like to see being
answered. Considering that the Birr has depreciated
by 30pc in the past 10 years and it may probably do
so by 60pc in the next 20 years, he sees an exchange
rate of a dollar to 15 Br. With the current 10pc
contribution of exports to the economy and a likely
60pc depreciation of the Birr, GDP has to grow 15
times its current size to reach around 1.5 trillion
dollars in order to have GDP per head of nearly
1,700 dollars. This requires an annual and
uninterrupted GDP growth rate of 20pc, according to
a projection by Ermias.
Asks Ermias: “Is the economy on the right track?”
Hashim believes Ermias’ forecast is a “reductionist
theory”; instead of making the debate simple, “he
puts it simplistically” employing only currency
depreciation as a lone indicator.
“Currency may or may not depreciate,” Hashim fired
back. “What we need to agree on is a set of core
indicators to measure growth and understand the
economy.”
Hashim is fond of using Angola as an example: With
its fortune from oil that is exempted from OPEC’s
quota, Angola is projected to have the highest level
of economic growth anywhere in the world in 2008.
Its GDP per head of 3,820 dollars does not mean that
it is a middle income country; with majority of its
17 million people still suffering from abject
poverty.
“The issue is not about what one dollar purchases in
an economy,” said Hashim. “It is rather about how
the middle income group is defined.”
Close to home, that is the story of Mathewos, the
resident of Awassa, a regional town with a total
population of over 200,000 people that is expanding
in a way never seen in its 51-year history.
Decentralisation of politics and budget has brought
changes to this thriving town; lately, around 20,000
students have flocked there, enrolled in close to 14
colleges that have mushroomed in the past few
years..
Mathewos knows both the town and its college
environment. He, together with his wife and the
three children that are still under the family’s
care, lives what he describes an average life. In a
way, his family is lucky; the 27-year-old son, Taye,
supports them with an additional 150 Br monthly
contribution from what he earns working in a state
hospital as a nurse.
He is not alone. His younger brother is involved in
a small community-based business comprising young
men and women in Awassa, one of the hundreds of such
micro-enterprises initiated and supported by the
state across the nation. Tefera Mathewos works in an
enterprise involved in metal and wood works and
contributes 100 Br a month to the family’s coffer.
With the additional help of his sons, the Mathewos
family earns an annual income close to 1,500
dollars, an amount nine times more than the nation’s
GDP per capita.
Despite the income, the family lives a life hardly
different from those of Derbe or Bekuma in Adama.
The three-room house is one of the 24 found in a
huge compound in Kebelle 03, rented for 30 Br. One
of the rooms serves as bedroom to the parents, and
the other to the children; the living room has a
table surrounded by six chairs and a buffet. There
are also a one-speaker National stereo, 18’ colour
TV and a DVD player.
The family shares a kitchen found inside the
compound with two of its neighbours and a communal
latrine shared by all the 38 residents who live
there.
If this family is to reach a living standard enjoyed
by those in a middle income country, there should be
a policy choice the country has to make in order to
transform the economy in order to turn a huge
population from liability to productivity, all seem
to agree.
Nevertheless, there is not real transformation in
the economy, Ermias argued.
“I know there is growth in the country because there
was good rain,” he said. “That is the story of this
economy. Are we sure that it will rain next year, or
the following year?”
Ermias’ contention - he described it a travesty -
lies in the fact that the poorest country in the
world has banks that suffer from huge liquidity.
Although challenged by Hashim, Ermias argued that
the level of investment by the private sector is
low, even compared to Africa’s average, and that
foreign direct investment (FDI) contributes an
almost insignificant share. Much of the current
expansion in the economy is driven by public
investment, which may be a good beginning but not
lasting, according to Ermias.
According to the World Bank’s 2007 African
Development indicators, private investment
contributed 11.4pc to Ethiopia’s 11.4 bln dollar GDP
in 2005. The same year, foreign direct investment in
the country totalled 150 mln dollars.
“The state is investing in primary, secondary and
tertiary educations. It is good,” said Ermias. “The
problem comes when the kids graduate, where do they
go to in the absence of private investment in
industry?”
In Ermias’ view, Ethiopia invests little in
developing its financial infrastructure that could
enhance its physical infrastructure. He ascribes to
the International Monetary Fund’s (IMF) claim that
it has the least developed financial system in
Africa.
“It is not because there are no resources,” he said.
“It is simply because of policy choices.”
Ermias would like to see a departure from a
rain-dependent agricultural economy to urbanisation
and the next stage of growth in the country to be
led by the private sector. He argued - passionately
- that the state’s priority should be in developing
a financial infrastructure for this sector.
Others see a considerable role of the state in the
economy, convinced that the saturation point for
public investment is far from being close because it
started from a low base. Jelal Abdulatif, a director
at the UNECA, is one who projected unhampered public
investments for the next 10 years in roads, telecom,
irrigation and power.
“What should be asked is the quality and selectivity
of the state intervention in investments,” said
Jelal.
Whether it comes from the public or private sector,
Eleni described what Ethiopia should get in the
future: “Growth with dignity”.
This is what fathers like Derbe, Mathewos and Bekuma
said they wish for their children. With whatever
they earn, they invest on their education hoping
that they would live better lives than they have all
have managed to live.
“My children are my priority,” Derbe told
Fortune, although he also wants to get a driving
license to become a chauffer. “I want them to be
well-educated and support themselves. They are my
hopes.”
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