|
Making ends meet has become difficult in recent days. Commodity prices
are incessantly rising unpredictably, while real income declines
with inflation. Compounded by the rise in general prices, it takes
more money than yesterday to buy the same basket of goods, in
keeping with the principle of the time value of money.
People are forced to pay more for the same goods or to pay the same
amount for lower quality products. A number of factors such as
inflation, currency devaluation, price caps, and scarcity are
colluding to make life intolerably expensive.
Amid the inflationary economic situation, the role of infrastructure
development, such as constructing roads, is invaluable. However, the
government’s strategy to achieve its aim of connecting every region,
zone, and wereda to one another with roads could cause the life of
urbanites to worsen by fuelling inflation.
On the one hand, infrastructure development encourages private
investment in productive sectors. Yet, the mere existence of
infrastructure development would not be helpful beyond creating
additional demand that could not be met by proportional supply
growth.
Infrastructure development would also lead to faster growth in the
service sector; it would grow much faster than productive sectors.
The higher profitability of investments in the service sector could
draw even move labour away from the productive sectors.
Such is the case with a farmer who prefers to become a cereal trader or
a janitor of a hotel in urban and semi-urban areas.
The move of labour away from agriculture without any increase in its
productivity or without structural change to the sector would likely
lead to a decrease in production and increase in consumption.
Traditional life would be pushed aside as social interaction and
cultural exchanges materialise with the opening up of roads. This
would give rise to high demand for products and services beyond what
the country can supply in the short run. People in peripheral parts
of the country who have never been accustomed to eating injera are
now becoming used to it.
This creates additional demand for teff. While this may be good news
for producers, it is bad for consumers as it would drive prices up.
Compensatory short-term production is so unlikely that the supply
gap would temporarily be worsened due to the new demand.
Shouldering compensatory production would also be challenging with the
majority of regional states being insufficient cereal producers.
Since surplus producers are limited to a few zones, such as Gojjam,
Bale, Arsi and Shoa, such a supply shock is intolerable.
However, regional linkages would be enhanced with expanding
infrastructure development. Such an interconnection would push
demand of agricultural produces higher than the production capacity
of even the zones producing excess supplies. If production is
channelled out of the regions in different directions, scarcity
would eventually prevail and push the general price upward.
So long as production capacity is limited, compounded with limitations
in capital and technology, coping with the spiralling demand would
not be easy. Although such a gap induces investment, the many risks
of doing business would not make the target easy to attain.
Huge public expenditure on infrastructure development will also
increase money supply in the economy, aggravating galloping
inflation. The problem could only be managed through prudent
exercise to shorten time lapses between the completion of projects
that benefit accrual of time.
In infrastructure, investment would also be important to curb
inflation, given the economic pulses. This is easier said than done
in developing countries such as Ethiopia.
Focusing on overall economic takeoff could accelerate change in the
agricultural production system. For this to materialise, inducing
expansive agricultural development in regional states would be
essential.
Regions should also identify their comparative advantage and specialise
in areas where they have a competitive advantage for it improves
land utilisation. This strategy should be the principal focus of
regional governments. Enhancing interregional trade and market
capitalisation might also help.
Land diminution for producing cash crops such as Khat should be
discouraged so far as it expands the underutilisation of land
resources. Instead, the production of high value crops should be
limited to regions with low competitive advantage in cereal
production.
Above all, the private sector has to be encouraged to engage is
mechanised cereal production.
Infrastructure development should be aligned with productive capacity,
supply structure, and resource endowment if it is meant not to be
inflationary. |
