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Dagnachew Assefa, 18, used to earn 40 Br a week from
his after schooljob of distributing crates of
beverages produced by the East Africa Bottling Share
Company (EABSC) to the different retail shops and
cafeterias around St. Lideta Church, along Chad
Street of Lideta District.
The teenager is part of a family of three that are
heavily dependent on Dagnachew's job, which is at
the mercy of the state of the bottling company.
Hence, the closure of the bottler on March 12, 2009,
caused a sudden income deficiency in the family.
The ninth grader at Dejazmach Balcha Aba-Nefso
School located near his village and business zone,
on Dejazmach Bekele Weya Street, has a sibling - a
younger brother - and a mother to support. The
weekly 40 Br from his job attached to EABSC, which
he has not earned for more than two weeks now since
the bottler suspended production - plus the 30 Br
per service his mother earns from washing clothes
are the only incomes the poor family earns.
"I don't know what is going to happen and I couldn't
figure out what to do, given my age and educational
status," he told Fortune.
It has been more than 15 days since Dagnachew was
troubled by the sudden disappearance from the market
of the beverage types the family's lives depended
upon as their major source of survival for more than
the past four years.
The Coca Cola producer in Addis Abeba, located on
Dejazmach Balcha Aba Nefso Street, and one of the
two operated by the company in the country, had gone
out of business for weeks due to a problem
attributed to the foreign currency crunch, before it
resumed operations late last week following a 1.8
million dollars lifeline given to it by the
Commercial Bank of Ethiopia (CBE).
Dagnachew is one of the more than 150,000 people
dependent on the operations of the bottler but some
of whom, him included, do not even know what caused
the blow to their business.
"I don't know what led to the shutdown of the plant
[EABSC]," Dagnachew told Fortune. Such has
life become for the likes of Dagnachew who suffer
the brunt of a macro-economic phenomenon that they
have no knowledge of how it works.
The 761 distribution shops and 35,000 outlets
throughout the country, with an estimated 150,000
beneficiaries involved (other than the 1,000
employees of the plant) are those that have been
influenced by the bottler's decision to stop
production.
The company said it was forced to stop bottling
beverage types - Coca Cola, Fanta, Coca-Light,
Sprite, Fanta Orange and Ananas (Pineapple) - and
shutdown the plant because it was not able to import
raw materials needed for the production process due
to the shortage of foreign currency that has
inundated Ethiopia's economy for months now, if not
for a full year.
The nation's forex reserve at the Central Bank
nosedived in the few years that it had to finance
the high price of oil, especially last year. The
reserve shrunk below the 1.3 billion dollars minimum
mark required to keep the economy stable, sliding
down to 850 million dollars.
To fill the 450 million dollars gap, the Central
Bank tightened access to forex by the private sector
to reduce the amount of foreign currency available
in the market.
Though the price of oil in the global market has now
declined, Ethiopia's demand for imported wheat,
cement and capital goods increased correspondingly,
adding to the severe foreign exchange shortage,
Prime Minister Meles Zenawi said on March 19, 2009,
at a parliamentary question time.
Though the government and the IMF considered a level
that is equivalent to three months of imports as a
reasonable target, the amount currently available in
government coffers is sufficient to cover just close
to two months of the country's imports.
Ethiopia's import volume climbed to about nine
billion dollars in 2008.
Recently, when the gauges that notify government
economists and the National Bank (NBE) of the
reserve volume started tilting towards "empty" for a
long time, perhaps with a slight reverse move rare,
the real impact of this on the economy began to hit
companies, such as the Coca Cola manufacturer, and
thus also noticeably affected people like Dagnachew.
"It [the forex crunch] is clearly affecting many
industries, as they are unable to import critical
inputs, spare parts, and many investment projects
are suffering as well," Kenichi Ohashi, World Bank
(WB) country director to Ethiopia and the Sudan,
said in an email response to Fortune's
questions. "It has also had inflationary
consequences."
Ohashi argues that, for instance, while the global
price of most commodities is now below last year's
level, in Ethiopia the prices are, on average, 30pc
higher than that period, partly because of the
foreign exchange shortage.
There are different views as to what caused the
shortage of foreign currency in Ethiopia, though
most revolve around the global economic downturn.
Some economists argue that the escalated domestic
demand for import items is a possible catalyst for
the foreign currency crunch, while others say it is
the slump in the export sector. The decrease in
production level and lower quality of the items of
export, together with the decline in demand and
falling prices in international markets could be the
other reason fueling the lessened hard currency
in-flow.
What could be more troubling to most, however, is
that the economic slowdown that has been going on
for months now and the recent incidents of
production stoppages are considered the beginnings
to a more serious economic crumble.
"Pessimistic outcomes are inevitable," an economic
expert, who requested anonymity, told Fortune.
Assuming that all the factors remain constant, the
economist argues, the near future would exhibit high
prices of commodities, especially for those which
can not remain in stock for long.
According to the International Monetary Fund's (IMF)
most recent forecast, in 2009, growth in low income
countries' (LICs) - Ethiopia included - is projected
at just over four per cent - more than two
percentage points lower than that expected a year
ago.
Part of the causes for the dark economic future of
the LICs is a decrease in investment, especially
that of Foreign Direct Investment (FDI).
However, at present, despite a massive inflow of FDI
like in the past couple of years, economists assume
that a good part of those who have been given
investment licenses and have not started work are
likely to remain inactive.
This, according to such economists, is partly the
result of the lack of a favourable bureaucratic
environment on the part of the government. Thus, the
government should improve its relations with the
traditional donor countries in the developed world
by shifting its stance somewhat, at least
temporarily, this group of economists advises.
"It is time for rigidity to give way to flexibility
in order to survive challenges as big as those that
threaten the closure of companies," said an
economist who insisted on anonymity.
Further worsening the problem is a declining
commitment to aid from developed states, leading to
potential reductions in aid flow. For a country like
Ethiopia where aid plays a significant role in the
economy, these trends obviously add to the troubles
of Prime Minster Meles's administration. Because of
the global economic downturn, developed countries
are tied up with and taken by big enough problems at
home that they seem to be paying less or no
attention to their aid recipients. And where they do
pay attention, they may be too shortchanged to help
out the poor nations.
Nonetheless, the about 800 million dollars the WB
has already agreed to lend Ethiopia this year
through its International Development Association
(IDA) may give some significant relief to the
government. The IDA loan, which is at least 200
million dollars higher than that of the past year,
is in addition to the 250 million dollars financing
the Bank provided in November 2008 to help with the
import of fertilizer for the 2009 cropping season.
In addition, the WB is likely to disburse around 1.2
billion dollars in the current fiscal year, which is
almost three times the disbursement in the previous
year, according to the Bank's Country Director.
Operating with a minuscule forex reserve is,
however, not a new phenomenon to Ethiopia's economy.
Nevertheless, the reserve amounting to 906 million
dollars in 2007/08 was the lowest recorded since
2004. This amount can pay for only seven weeks of
the nation's imports. As a result, commercial banks
were no longer at ease with processing requests for
letters of credit (L/Cs) for imports.
Adding insult to injury, Ethiopia's economy has not
yet laid the basis to generate foreign currency from
its exports to cover imports.
"That is why the government has been devaluing the
Birr against the dollar from a five to six per cent
rate every year for the past decade or so, has been
engaged in an export promotion policy, and has
sought foreign aid and loans," according to Meles.
For example, in the current fiscal year, Ethiopia
targets earning 2.5 billion dollars from its
exports. Yet reports from the Ministry of Trade and
Industry on the performance so far indicate that
only about 622 million dollars has been achieved in
the half-year.
In sharp contrast, the country's import volume has
already jumped to the nine billion Birr mark,
creating a mammoth deficit.
This import-export imbalance is rooted in the
structural problem that has been there for many
years and cannot be solved in a single year, Meles
told MPs more than a week ago.
Thus, it is apparent that both internal and external
economic factors would, for a considerably long
period of time, remain obdurate forces in the
current trend, further fuelling the challenges
stemming from the foreign currency crunch and other
economic dynamics that do not operate in favour of
the country's economy.
The world is in a deep ocean of economic recession;
highly developed economies are shaking and this
downturn is expected to increase the number of
borrowers worldwide unable to repay their loans.
Now nearing the third wave after it hit the
developed and emerging economies in the first two
waves, the global financial meltdown is now
besieging low income countries, especially those in
Sub-Saharan Africa - such as Ethiopia - according to
the IMF. This challenge is projected to demand at
least an additional 25 billion dollars from donor
countries in 2009 for the low income countries to
cope with the crisis.
In the case of Ethiopia, revenue from exports, FDI,
or even the backing of grants from its development
partners do not appear to be sufficient to level out
the economic problem, according to a report the IMF
released in March 2009.
The report shows that the balance of payments of the
LICs had already been severely weakened by the
2007/2008 global fuel and food price hike.
There are also anticipated effects on LICs' exports
and remittance inflows, which are expected to be
negative in 2009. Remittances constitute an
important source of external financing, providing
earnings to the poor. FDI flows to LICs, on the
other end, are also expected to reduce
significantly, according to the report.
Despite being faced with this set of problems
wrapped by the global economic meltdown, the
Ethiopian government, however, is still actively
pursuing mega development projects that require huge
foreign currency spending. A cut in the spending on
these huge projects is a measure some economists
suggest as a viable solution. Others believe that
the government should engage in meaningful
discussions with relevant stakeholders of the
economy that are highly affected by the phenomenon
and bail them out, like was done with EABSC.
The recent move by the state owned commercial bank
to provide East Africa Bottling with the 1.8 million
dollars lifeline for raw material imports is an
indication that this suggestion holds water.
On the other hand, one part of the set of short-term
solutions the WB Country Director suggests is the
depreciation of the Birr, which he says would
certainly help to curb imports - in particular the
consumption of these goods - that would reduce the
pressure on the reserve.
In the interim, with hopes that the resumption of
production at the bottling company may last longer,
Dagnachew and many others have undoubtedly become
victims of the global economic meltdown, which
elsewhere in the world has, by now, become common
place.
Government authorities on economic matters were not
available for comment by the time Fortune
went to press. |
