|
Asege Alayu, 38, is a housewife who depends on her
chauffer husband, Girum Ayro, to raise her four
children. From the 800 Br net salary he gets from
working at an NGO, he gives 500 Br to Asege, who has
no other source of income. However, this amount
could hardly satisfy their needs, forcing Girum to
now apportion over 700Br of his salary to the family
budget.
“Still, I am struggling to bring up my children
because of continuous price hikes,” says Asege.
The consumer price index has been persistently
rising in Ethiopia in the past three years. The 10pc
inflation rate of January 2006 had risen to 17.5pc
by January 2008.
According to the National Bank of Ethiopia (NBE),
this marked inflation has been playing a key role in
pulling up the overall price level: it grew from
12.9pc to 22.8pc from January 2006 to early 2008
respectively. Core inflation grew from 6.1pc to
10.1pc in the two years mentioned.
The just ended month of March has seen a number of
phenomena concerning the inflation crisis. Addis
Abeba has been rocked by a number of economic shake
ups in the past four months: from a drastic price
increase in salt to a series of controlling measures
taken by the government to try and get rid of the
monster called inflation.
On March 7, the price of salt surged from 1.50Br per
kilogram to 10Br prompting an outcry among city
dwellers. The government responded hastily by
apprehending businessmen who were allegedly selling
the commodity at that exorbitant price. A task force
was subsequently put in to place by the Ministry of
Trade and Industry (MoTI) to monitor prices.
The Meles led administration has also continued its
fight against inflation, going beyond fighting the
high prices of commodities to taking a number of
stringent measures: the export of barley and sorghum
has been banned, Value Added Tax (VAT) and turnover
tax has been lifted from foodstuffs, the import of
sugar, oil and wheat has been facilitated, and
reserve requirements on deposits have been raised by
five per cent to 15pc.
Prime instruments have been put into place to ease
the pressure on the urban poor such as the
distribution of commodity supplies through the
Merchandise Wholesale and Import Trade Enterprise (MEWIT)
and the establishment of Consumers Cooprative
Associations.
With its 80 branches in the all over the country,
MEWIT supplies over 500 types of goods to the city
residents. Among the commodities it supplies Edible
Oil, which is increasingly becoming unaffordable to
the low income segment of society. It should be
priced at 16.50Br yet its market price is 25Br.
After securing 75 million Br from the government,
MEWIT is importing 1.5 million litres of oil. The
enterprise is also importing concrete steel to ease
the cost of construction.
Yimam Ahmed, general manager of MEWIT, told
Fortune that concrete steel is under importation
at a cost of 30 million Br.
Following expansion in the construction sector, the
demand for concrete steel and cement has peaked.
However, the local supply does not match the demand.
Three cement factories - Mugher, Messebo and
National - collectively supply only 1.6 million
tonnes of cement annually while the demand is over
three million tonnes. To bridge the glaring gap, the
government has set out to boost cement production to
4.7 million tonnes in two years. Girma Birru,
minister of Trade and Industry, believes that the
government will more than succeed to this end.
The government’s other focus is on the establishment
of Consumer Cooperatives. The Addis Abeba Trade and
Industry Development Bureau envisage a mother
association comprising the 99 kebeles.
It is not only the government that is passionate
about the associations. Asegu also believes that
residents could make a difference through them. She
has therefore become a member of Andenet Consumers
Association, which has been formed in her locality.
There are 34 Consumers Associations in Addis Abeba
so far, of which only 12 are strongly active. Among
them are Jamo, Addis Sefer and Heber Consumer
Associations.
Addis Sefer was established in October 2007 in
Kebele 15/16 in the Nifas Silk Lafto District. The
190 members of the Association got membership by
purchasing shares worth 1,000Br each.
According to Tilahun Gashaw, board chairman of Addis
Sefer, the price of the shares has been reduced this
month to 200Br in a bid to encourage the lower
income group to become members.
The association, which owns a grain mill and a
warehouse, envisions opening outlets in most kebeles.
It currently procures teff, wheat as well as
other grains from Lome Adama Farmers Cooperative
Union. It then supplies a quintal of teff to
its members for 565Br, including the cost of
milling, while in the ordinary market it goes for
640Br.
Tilahun told Fortune that the association
requires a 7,000sqm plot of land for its future
projects, namely, the construction of schools and
hotels.
“We have a problem in acquiring a plot, though,” he
said.
A source told Fortune that the City Trade and
Industry Bureau has conducted a study, which
advocates for the granting of community shops and
warehouses in the 99 kebeles to successful Consumers
Associations.
In his latest parliamentary report on March 18,
Prime Minister Meles has stressed the roles of such
consumer associations in curbing the rise in
consumer prices. Following the report, close to 10
consumers associations have applied to be licensed,
Geremew Abera, head of the Cooperative Associations
Expansion and Supervision Department at the Bureau
told Fortune.
According to one economist, the formation of these
consumers associations would drive out formal
businesses from the market.
“If these associations are planning to directly
purchase commodities from farmers’ cooperative
unions, factories and wholesalers, what will be the
fate of the mass of businesses?” he wonders.
In a bid to abate the inflation, the National Bank
of Ethiopia (NBE) also has revised its regulation
regarding reserve requirement ratios. For the second
time in eight months, the regulator of financial
institutions in the country has raised required
reserve ratios of commercial banks by five per cent
to 15pc of the total net deposit. This measure has
been taken in a bid to cut the amount of money in
circulation in the economy, a reason economists
believe is the main cause of inflation.
“Although the role of commercial banks in hastening
economic development is crucial, with the
responsibility we have to stabilize the inflation,
we have taken this measure,” the Bank has pointed
out.
According to the NBE, the money circulation observed
in the past seven months exceeds same the period
last year by a stunning 39.4pc. Moreover, says the
NBE, the liquidity available for disbursement among
the commercial banks is still high.
However, commercial banks feel that the government
is fighting inflation at a great cost to their
profit as the latest regulation decreases the amount
of loans that they disburse to the public, which in
effect means that their interest profit declines.
Leykun Berhanu told Fortune that the increase
in reserve requirement would definitely harm
commercial banks.
“Neither will the high money circulation benefit
us,” he says.
But the increase in money circulation is also
associated with mega investments by the government.
Lidetu Ayalew, president of UEDP/Medhin argues that
the billions of investment on such projects like
hydroelectric dams and sugar developments have
increased the money in circulation. Even if these
projects are advantageous, says Lidetu, they should
not be undertaken hastily.
“The EPRDF is after political results instead of
economic benefits,” Lidetu told Fortune. “The
investments could be healthier if what is planned to
be accomplished in five years is extended to six
years.”
Economists associate the inflation, which began
soaring in major towns since 2006, especially in
Addis Abeba, with the rise in the amount of money in
circulation, the increase in major international
commodities like oil and fertilizer and the change
in marketing systems. The increased income of rural
households and huge investments in capital projects
are also claimed to be the major causes of the
inflation, which is shattering to the urban poor.
The government has been subsidizing 3.5 billion Br
and 372 million Br for oil and wheat respectively to
take the burden away from the urban poor. It could
not be a sustainable solution though, as the Prime
Minister Meles also believes.
Residents like Asege expect solutions to this
economic crisis before their meager income
completely fails to help them stay alive!
|
