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Lemlem Assefa, a mother of one, is one of the many
poverty-stricken residents of Addis Abeba. With the
150 Br monthly income she earns from where she works
as a maid, she supports her mother and four-year-old
son. She toils during every bit of her free time to
make extra income, and occasionally earns 80 to 120
Br a month from washing clothes for single men.
Fortunately, the trio live in a state-owned single
room house, at the reasonably cheap cost of 7.50 Br
per month in Kebele 03/04 of the Yeka District.
At first glance, Lemlem does not appear to be in her
early thirties. Her cheeks have turned pale from her
daily exposures to the heat in the small kitchen
where she works. Trying to prepare a meal for her
mother and baby son is distressful for her. For
close to six months now, she has been using fire to
cook every meal, tolerating the scorching heat of
the flames and the blinding smoke, albeit with a
feeling of distaste.
Following the adjustment of the retail price of
kerosene in January this year, Lemlem has had no
choice but to resort to low cost energy sources,
such as wood and charcoal. Six months ago, the
Ministry of Trade and Industry (MoTI) slapped an
additional 1.84 Br on benzene and 2.6 Br for diesel,
revising the prevailing prices. Subsequently, the
cost of a litre of kerosene shot up to 5.75 Br, a
price that Lemlem obviously cannot afford.
“I have stopped cooking with Kerosene,” she mourns.
“It is on a few occasions that I use it.”
Lemlem has not only been unable to afford kerosene
because of her meager income, she has also not paid
her house rent for months, and hopes that she will
be able to settle her debt before the kebele drives
her out. Her family survives on the generosity of
her bosses who gives her food to take home almost
daily.
To the dread of most city residents of her class,
speculation on price revisions is rife. Often,
people queue at fuel stations for a long time to
fill up their tanks, fearing a possible price
adjustment by the government at any time.
Their fears are not baseless. Escalating oil prices
- except for a few slumps - have ricocheted across
the globe, sending economic shock waves that have
affected even the top industrialized economies of
our time. The cost of crude oil struck a record high
of 140 dollars a barrel last week, a six- fold
increase compared to the price in 2002.
Ethiopia has not been spared from the scorching
effects of the price surge, which has had a
devastating effect not only on the national budget,
but also on the general economy as the price of fuel
is factored into the cost of almost everything. For
instance, in 2006/2007 the country spent 8.7 billion
Br on the procurement of 1.6 million metric tonnes
of oil. The oil import bill for the first nine
months of the current budget year exceeded that of
the previous year’s total expenditure by close to
two billion Birr. In the first three quarters of the
2007/2008 fiscal year, Ethiopia paid 10.1 billion Br
for the procurement of the black liquid gold. This
is close to a 3.7 billion Br rise compared to what
the country paid at the same time last year for 1.2
million metric tonnes of the commodity.
What is worse, this year, the demand for oil has
increased to 1.3 million metric tonnes in the first
nine months of the budget year, amidst the
skyrocketing prices. One of the major reasons for
the rise in demand for diesel oil, especially in the
past two months of the budget year, is the current
power outage that lasts for 10 days of the month. As
a result, more generators are roaring, as they are
used by all businesses – from small kiosks to large
manufacturing firms – in a bid to remain afloat.
The power blackouts have also resulted in an
increase in the import of diesel oil by the
government.
“This has created a serious damage to our enterprise
because we sell it at subsidized prices,” said
Damenu Kibret, Public Relations officer at the
Ethiopian Petroleum Enterprise (EPE).
Ethiopia imports five types of oil: white diesel for
heavy duty and cross country trucks, which accounts
for 58pc of the total imports; kerosene for
household consumption, amounts to 15pc of the total
import volume; benzene accounts for nine per cent;
jet fuel for planes is 10pc of the total import; and
light and heavy diesel (eight per cent) for
industrial use.
All these oil types are distributed to retailers at
prices far below the soaring international price of
the commodity, putting a greater strain on the
federal government, which foots 65 to 67pc of the
price difference.
Damenu believes the government should no longer
carry the total burden on its own.
“From the point of view of an Enterprise, we would
want to see the prices revised again, even if it
might exacerbate the cost of living for the poor,”
Damenu told Fortune.
India, Malaysia, Indonesia and Taiwan have increased
fuel prices and reduced subsidies, a move Ethiopian
authorities often shun. The Asian governments, like
Damenu, believe that is the only way to lift the
burden off government shoulders. The Ethiopian
government, however, argues that lifting the subsidy
would fuel the spike in prices of other commodities.
“Revising oil prices at this point would not be an
appropriate measure considering the pain the urban
poor is going through due to the costs of basic
commodities,” Girma Birru, minister of Trade and
Industry, told Fortune.
Often, his government is criticized for being overly
paternal in the face of the prevailing economic
shocks. It was only when the global price of the
commodity peaked to 80 dollars per barrel that the
government made a cost adjustment six months ago.
The current cost has almost doubled, yet the
government has not made any adjustments so far,
despite speculation.
What is more alarming is analysts’ views of the
future scenario. There are predictions of oil prices
hitting 200 dollars a barrel this year, as
consumption continues to rise rapidly while supplies
lag. Economic leaps forward by China and India, they
argue, represent a step-change in energy demand.
“This government cannot continue subsidizing oil for
more than three more months,” says Haile Kibret,
head of the Macro Economic Research Division at the
Ethiopian Economic Association.
Ethiopia has squeezed its foreign exchange reserves
due to the increase in its import bills.
After assessing the economy, the International
Monetary Fund (IMF) a month ago reported that the
east African country is left with foreign exchange
reserves below two months of imports.
The pressure seems to have mounted on the government
to adjust prices for three major reasons: economic
forecasts predict that the global price of oil will
not decline; local demand has increased compared to
last year; and most other countries are trickling
the price increase directly to the consumers, which
is almost unanimously supported by pundits.
The strain on the Federal Government coffers is
apparent. The more the government spends to
alleviate the burden from the urban poor, the more
the budget slides into deficit. Economists believe
that this only works to fuel inflation in the long
run.
The Meles Zenawi-led government has been blistered
by a run away inflation, despite reporting five
years of double-digit economic growth. Both global
and local forces have pushed the prices up, although
the government associates inflation with the former.
Excess money supply has also been driving domestic
prices to the roof. In April 2008, the overall
inflation rate was 19.9pc. A headline inflation (on
food commodities) was even worse at 26.6pc,
significantly rising from 16.9pc at the same time
last year.
In addition to subsidizing the poor, the government
has hesitantly begun to look for alternative energy
sources. The Council of Ministers approved, in
September 2007, a Bio-Fuel Development and
Utilization Strategy crafted by the Ministry of
Mines and Energy. This plan aims at utilizing the
country’s bio-fuel, bio-diesel and ethanol
production potentials in a bid to decrease the
dependency on fossil oil.
However, judging from developments so far, it does
not seem that the government would reap the benefits
of the strategy any time soon.
Although speculation of an oil price increase has
been a source of anxiety for most, Lemlem does not
appear worried.
“It doesn’t bother me anymore if kerosene prices
increase because it already has become a luxury for
me,” she explains, highlighting the level of her
deprivation. “But I do worry that it may affect the
household I work for and force them to stop their
daily support in kind to me.”
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