I have read your editorial headlined, “In Defence of Fuel Price Hike”, [Volume 8, Number 406, February 10, 2008] with an interest for it tried to adopt a unique view from the long-held paternalistic mentality of the majority here. It ought to have provoked the country’s economists to rethink their academic views that I often find in favour of the status quo. It is also ironic that many of them tend to be silent on such a mind-boggling issue.
 

Notably, your editorial has made a good point in explaining that the seemingly untouchable oil subsidies by the government - to the tune of 3.2 billion Br - has robbed it of its capacity to invest on basic infrastructure works such as roads, education, health and electric power expansion, many of which are notoriously foreign aid dependent. In the long run, these are investments that have the potential to provide citizens with fair distribution of economic opportunity, if not income. It is very paradoxical to learn that people in a non-oil economy pay much less for fuel than in oil rich countries.
 

While I support your defence of the government’s measure in reducing subsidies on fuel prices, though still very little, I believe it should be seen very cautiously and therefore has to be accompanied by measures which guarantee to the larger public that prices are not artificially set high for reasons beyond an increase in international oil prices. The sticky nature of prices when raised in Ethiopia would make the caution to be taken so important.
 

With the increase in the price of oil, which is the most ubiquitous input in almost every production process, it is natural to expect increases in prices of commodities. However, how high the increase in oil price has impacted consumer prices is the issue that needs to be scrutinised more closely.
 

There is no need to make a regression analysis to find out that the magnitude of change in commodity prices due to increase in oil price is high accordingly. Only common sense can tell us the average increase in oil prices, and other factors, with upward pressure on price for that matter, and increase in the consumption is not absolutely proportional.
 

The poor and those urbanities with fixed incomes have been directly affected by the increase in oil prices, as they are dependent on oil for cooking. On top of this, these same classes have to bear the brunt of speculators in the market, who think that the oil price increase is all their concern.
 

In light of these factors, advising ‘opening the door for competition’ as you did in your concluding remark could be the best policy choice. But its fruits can only be reaped in the long run because a glimpse on how the major actors in the market play - where the life of excess of households from different walks of life depends - tells us a sad story.

The basic essence of free market lies in one magical word; ‘competition’. Hence, as in any economy, it is only when there exists strong competition that the poor and the middle-income class could benefit from it. The sad story is that prices of major commodities, which the majority consume, are not competitively set.
 

It is rather decided by businesses that have uniform psychological make-up and close social relations, not to mention the fact that major trade centres are owned by few families that operate as cartels. It is naïve of us if we were to assume that these cartels set the prices of goods in their possession considering their various costs and add a reasonably acceptable profit margin.

Businesses in Ethiopia are such that they always agree to make increments in prices of commodities they sell almost on a daily basis. Suffice helpless complaints from powerless consumers aired in various media outlets. The covetousness of these businesses, coupled with poor market infrastructure, has left the consumers feeble, and thus become a main reason behind public pleas for state intervention in regulating the market.
 

As I understand your newspaper has always been pro-liberalisation, it is certain that you may not like to see the state trying to fix what is wrong with the market. But it is equally discontenting to leave the problems to the magic of the market, at least in the short run. To do that is to forget the poor and those in the fixed income bracket, which constitute the majority.

Unfortunately, much is expected from the government, the strongest institution in the country, in the functions of the economy. Nevertheless, I do not mean in the sense of setting prices of commodities as it is practiced in an economy that is centrally planned.

I would rather advocate for a government that paves the road for competition to create a full-fledged market. To this end, the commodity exchange market which has yet to start should be given priority, for it could provide dependable market information and has its own role to play in spurring competition among economic agents.
 

Regrettably, the consumer community is left to continue bear the brunt of cartels before these institutions are in place; competition becomes the rule of the game in the market, which undoubtedly would take a long time. This may have a very dangerous consequence, eroding consumer confidence and may have the capacity to create public despair that may lead to proliferation of crimes.

For this not to happen, the poor and the middle-income group should get a shield from the state so that they could be spared from very powerful and speculative businesses. This government should strengthen and diversify the supply of major consumption items through kebeles (local administrative units) as it has been contemplating recently. Encouraging the formation of consumer associations can also help the public to have a bargaining power that could put a downward pressure on prices of commodities.