The Benefits and Risks of Ethiopia’s Massive Loans

Filed under: Opinion & Analysis |

–The past as a guide in utilizing loans–

Aklog Birara (Dr.)

“The ugly reality is that most poor people in most poor countries most of the time never receive or even make contact with aid in any tangible shaper or form: whether it is present or absent, increased or decreased, are thus issues that are simply irrelevant to the ways in which they conduct their daily lives.”

Graham Hancock, Lords of Poverty

Part II of V

In Part I, I expressed my personal appreciation and commended Prime Minister Dr. Abiy Ahmed for his Nobel Prize win. This win is part of a larger and more complex set of issues. In a valuable commentary “Abiy Ahmed, Vladimir Lenin and the Quest for Peace” released on December 29, 2019, the Wall Street Journal pinpointed the formidable and interactable challenges Prime Minister Dr. Abiy Ahmed faces in his homeland.

“Abiy won the Nobel for his “decisive initiative to resolve the border conflict with neighboring Eritrea,” but his most important work lies ahead of him. Ethnic conflict is the principal threat to the stability of Ethiopia—Africa’s second-most-populous country, one of the world’s fastest-growing economies, and a critical U.S. counterterrorism partner.”

For decades now, I have been arguing that Ethiopia’s ethnic-federal system imposed on the Ethiopian people by the TPLF dominated regime puts the country in a permanent cycle of conflict and suspense. As the Journal notes aptly “And the country’s constitution exacerbates the problem. To stave off disaster, Mr. Abiy must reverse decades of ethnic exclusion, reinforce pan-Ethiopian identity, and reform a flawed federal system. He must also banish the ghost of Vladimir Lenin.”

Ethiopia is neither federal nor democratic. “The 1995 constitution has reinforced differences among” Ethiopia’s 85 plus ethnic groups “by dividing the country into nine ethnically defined regional states. Now that Mr. Abiy has called for elections and lifted restrictions on freedom of expression, ethnonationalists among the regionally dominant groups are feeling emboldened. Some are violent. Minorities in the nine ethnic states have good reason to fear the tyranny of the majority: Nearly three million Ethiopians fled their homes in 2018. That’s more than were internally displaced due to conflict in Syria, Somalia and Nigeria combined last year.”

As the Norwegian Political Scientist Lovise Aalen put it succinctly, “Ethnic federalism is “a very problematic model for any multiethnic society.” Among other things, it does not empower citizens at all. It divides and marginalizes them. Instead, “The federal structure empowers regionally dominant groups like the Oromo (34% of Ethiopia’s population) and the Amhara (27%), giving them little reason to compromise with ethnic minorities or migrants who’ve left their home region.” Even within ethnic based regional states, power and resources grab has begun to escalate. Identity based conflicts have mushroomed everywhere thereby creating chaos and disorder throughout the country. Unable to preserve peace and security, federal authorities are in firefighting mode quelling one unrest in one location while another ethnic and or religious conflict erupts somewhere else.

I agree with Professor Asnake Kefale of Addis Ababa University who says rightly that “Unlike any other constitution, Ethiopia’s “allows self-determination up to secession.” I had opined several times that Ethiopia’s constitution won’t hold the country together; and had warned against the potential danger of Balkanization in the same manner as that of former Yugoslavia. The TPLF and its allies, the OLF and EPLF made a deliberate and strategic decision to establish ethnic federalism. The intent was to leverage TPLF’s minority stratus and to exercise political and economic hegemony. By all accounts this plot worked.

The impact of the Apartheid-like ethnic federal system on the ground continues to be horrific. Ethnic cleansing, whole sale massacres of Amhara, Annuak, indigenous people in the Omo valley and others, displacements of millions of people from their homes and properties, denigration and forcible evictions based on ethnic and religious affiliation, hatred and use of inflammatory language revenge and retaliation and the propagation of false and misleading narratives to shape the future, etc., etc. have been normalized.

However, this TPLF-led minority ethnic-based hegemony is no longer the case. The political and organizational structures that the TPLF created are, nevertheless, relatively intact. Newly emerging political and economic aspirants and elites are fighting among themselves for influence and control. This is compounded by external pressure, most prominently from Egypt.

“Ethiopian ethnic federalism presents a historical puzzle: Why would an ethnically diverse country adopt such a constitution, especially a few years after the Soviet Union and Yugoslavia fell apart?” asks the Journal.

It is painful for those of us who believe in Ethiopia’s long and distinguished past and promising future to understand why the TPLF, OLF and EPLF adopted a Constitution that allows secession for a country that served as a beacon of independence for all non-white peoples. Part of Abiy’s challenge is to undo this harm. As an African proverb puts it, “It takes a village to raise a child.” It takes all of us to navigate Ethiopia’s dangerous political landmines and save it from collapse.

As critical, I find it unfathomable that, almost 30 years after the ethnic-based system proved harmful and divisive, those who lost power and others aspiring it continue to drum up support for its continuity. It seems that political elites have learned almost nothing from the past.

Its is against this unsettled and uncertain political picture that foreign aid, including substantial loans must be assessed. For Ethiopia to optimize the full benefits of aid, first and foremost it must have peace and consensus on the country’s future. All its citizens must enjoy personal security. They must enjoy freedom to live, work, move, own personal property and establish enterprise in any part of the country.

Part II of these five parts series deals with what I call “Peace Dividends.” In the light of Ethiopia’s contentious loans and credits history over the past 28 years, I shall diagnose the potential benefits and risks of substantial loans in the amount of $9 billion that Prime Minister Dr. Abiy’s government announced. The Prime Minister was recognized” for his efforts to achieve peace and international cooperation, and in particular for his decisive initiative to resolve the border conflict with neighboring Eritrea.” Peaceful coexistence with neighbors has developmental values and impact.

I opine here that Abiy’s achievement is widely recognized by the global community, including multilateral donors. This is the reason I called the loans “peace dividends.”  Peace is a multifaceted and essential ingredient in advancing sustainable and equitable development. This leads me to the equally important and dire socioeconomic condition of Ethiopia’s 115 million people whose future prosperity depends on their freedom and empowerment. Increase in domestic product alone does not portray welfare and wellbeing.

What matters most is the capacity of individuals and families to meet basic needs on a sustainable manner; and to improve their condition year after year.

In this connection, most educated Ethiopians and especially elites and so-called foreign experts seem to have forgotten Ethiopia’s dark and debilitating times under the Tigray People’s Liberation Front (TPLF) and its ethnic coalition, the Ethiopian Peoples’ Revolutionary Democratic Front (EPRDF) that governed Ethiopia for 27 years. Despite harsh realities on the ground, Ethiopia was identified as one of the “fastest growing economies” in the world. At the same time, Ethiopians were treated brutally and harshly. Tens of millions of Ethiopian youth remained unemployed and underemployed. An untold number of Ethiopians, especially youth, perished. Hundreds of thousands left Ethiopia in search of opportunities abroad. Dozens were hacked to death in Libya; and large numbers died on the way to the Middle East and in the brutal Sahara Desert on their way to Europe.

One can’t forget the one hundred thousand plus Ethiopians who were expelled from Saudi Arabia. An estimated 750, 000 migrant workers live in Saudi Arabia. Tens of thousands are stranded in war-torn Yemen. They left because of a desire to improve their lives.

Beware of Ethiopia’s Mafia-like Network of thieves!

Against these cruel and punishing conditions that lasted for almost three decades, the TPLF dominated regime received and squandered massive amounts of loans and grants. Party, state and government operated in tandem and created a Mafia-like network that plundered Ethiopian society. The corrosive and demoralizing effects of institutionalized plunder are still being felt today. Abiy’s government is therefore not the first one that received massive loans. By comparison it is small.

The question in my mind is “Can Abiy’s government do better?”

The measurement I want to use is the extent to which Ethiopia’s current government plans to deploy loans, grants, remittances and foreign direct investments (FDI) so that Ethiopia generates millions of jobs for its youth and for females; empowers and unleashes its domestic private sector with a deliberate vision and plan to make it globally competitive; accelerates the modernization of the agricultural and pastoral sectors; reduces unnecessary imports through import substitution schemes; criminalizes all forms of bribery, commissions, waste, corruption and illicit outflow of capital;  identifies all forms of borrowing and renegotiates its massive debts or seeks debt forgiveness; and demands that the stolen billions of dollars in foreign destinations are remitted back to Ethiopian society as soon as possible.

I remind the reader to note that the largesse extended to the TPLF-dominated regime was squandered, stolen; and tens of billions of dollars were taken out of the country. Ethiopians were left with massive debt. This is why the IMF, the World Bank, the governments of Saudi Arabia, Kuwait and others extended loans to Ethiopia. Loans are not free goods. By definition, loans are repayable at one point; and in one form or another.

I have doubts about optimal use. This is because the current loans are given against a background of institutionalized and normalized party, government, state and private individual theft, robbery, corruption and massive illicit outflow of precious capital (የቀን ጅቦች ተብሎ የሚጠራው).  What institutional mechanisms are in place to mitigate risk?

How was theft, graft and corruption possible?

For one, there was ample capital to steal and to hide. By the time the reform process began two years ago, this organized theft left millions destitute. Ethiopia’s middle class was crushed by rising costs that went up by 20 percent last year alone.  Ethiopia’s national treasury was left virtually empty.

Second, there was no oversight.

Ironically, the 1990s and the early decade and half of the 21st century Ethiopia received tens of billions of dollars in bilateral and multilateral aid, including grants. The United States alone granted Ethiopia between $20 and $30 billion. A major American newspaper reported at one point that almost all of it was siphoned off by party state and government thieves. Imagine how many factories the stolen billions would have built. Imagine how may jobs these factories would have created.

Why import substitute matters

Imagine that these monies could have enabled Ethiopia to establish factories that would produce and sell edible oil to Ethiopian consumers. Instead, Ethiopia spends at least $600 million per year for edible oil alone. A further $700 million per year is spent to import wheat. There is no accurate data that can tell us the true picture; and guide policy.

There is some good news. I am delighted to hear and learn that Sheikh Al-Amoudi is establishing a factory that will produce and sell edible oil. I do hope and pray that this is a trend in import substitution that Ethiopia needs urgently. I underscore the dual benefits of generating employment and providing consumables to Ethiopians.

How to lie with statistics

On December 17, 2019, Reuters did an outstanding piece under the title “Ethiopia’s Surveillance Network Crumbles, Meaning Less Fear and Less Control.” It quotes Getachew Reda, former Minister of Information who admitted thus. “We lied left and right” and gave false and fake statistical data on practically everything, including production rates. To his credit, he acknowledged the damage. “That is why people got angry” and revolted against the regime and overthrew it. The question many Ethiopians are asking is this. “Is the replacement better?” Have officials ceased lying with data?

Remember that the “One to Five” surveillance network that is disintegrating faster than its creators thought possible had exaggerated growth rates and the welfare of the population; had propagated the notion of transparency and accountability in a country where these principles were non-existent etc. The regime denied theft, graft, corruption and illicit outflow with vigor and success. Donors never questioned this phenomenon. Has the narrative changed?

At one point the World Bank had questioned the government of Ethiopia in general and the National Bank in particular why they were underreporting remittances. The reason is simple. The regime wanted to receive more foreign exchange and under reporting remittances was part of fake statistics.

Independent Institutional Oversight is Imperative

The governing party, the state and government borrowed foreign exchange and spent it at will without any institutional mechanism to check and to assess benefits and risks. Financial and monetary data was underreported. It was made opaque intentionally. Massive theft, graft and waste is real. It is morally and ethically corrosive and destabilizing. The greatest damage is borne by the poorest of the poor and by the middle class.

As the captioned quote illustrates, the poor are never in the loop when it comes to aid. The irony is that aid is given to alleviate poverty. How do you alleviate poverty without engaging the poor? How do you justify aid year after year for more than 50 years without creating resiliency?

Evidence shows that, despite waste and theft, Ethiopia became one of the largest recipients of foreign aid under the TPLF regime.  In theory at least, this massive inflow of capital should have induced substantial employment and increased productivity; and should have created a large middle class. Ethiopia should have achieved food self-sufficiency. Ethiopia produces sesame but imports edible oil.

Massive foreign exchange inflow, including remittances created a handful of millionaires and possible paper billionaires in one of the poorest, starved and unhealthiest countries on the planet. The rich build lavish homes; construct formidable fences using imported iron bars to protect themselves against the very people who made them rich; and live in constant fear for their own personal safety and for the safety of their families.

I had seen identical enclaves in Brazil and Venezuela. The few with financial means remit and hide their financial assets overseas for a number of reasons.

  1. To protect their wealth assets from prying journalists, civil society and public officials.

 

  1. To avoid taxation.

 

  1. To finance and support their children’s education in foreign places and to ensure their long-term security.

 

  1. To invest in reliable and secure properties such as houses, apartments, condos, groceries, eating places and the like.

 

  1. To avail themselves of liquidity in the event of sickness and change in government.

Do Ethiopia’s rich have social responsibility?

Yes; they do. I remember once on a mission to Indonesia talking with a colleague there what corrupt Indonesian officials and private persons do with their riches. He asked me “Do you see that bridge over there?” I said, of course. The man who built it is a crook; but a good crook. He posed another question. “Do you know who owns the factory that produces the beautiful silk dresses and batiks that you and other foreign visitors buy here? The factory and numerous others like it employ hundreds of thousands of Indonesians, most of them females. The public knows that Indonesia is a corrupt country. But those who are corrupt have a redeeming quality. They invest their wealth, produce goods and provide employment.”

His depiction left me speechless. The contrast between Indonesia and most of Sub-Saharan Africa is huge. The lesson I gained is this. If you steal and or if you are corrupt, at least invest your riches in productive enterprises within your own country. After all, the money you stole belongs to the society you robbed.

This is hardly the case in Ethiopia or in the rest of Africa.

I leave you to ponder the following questions.

  • What did the rich and super rich produce? What is the source of their wealth?
  • Did they build factories that employ thousands of youth, including females?
  • Which of Ethiopia’s consumer goods did they produce for the domestic market?
  • What structural transformation did they bring?
  • Did the well to do dig wells or construct water kiosks similar to what rich Kenyans did in their villages?
  • Did the rich and superrich build schools in their home towns so that deserving children would attend schools close to their homes?
  • Did the well to-do, instead, send their children overseas to acquire their education so that they could be ahead of their peers and govern the poor?
  • Did they promote the right moral, ethical values and standards?
  • What proportion of their wealth did they contribute for charitable purposes?
  • Does pumping more loans into the Ethiopian economy without a clear vision of where the money is invested and for what make sense?

Part III of V: The Benefits and Risks of Ethiopia’s Massive Loans—The past as a guide in utilizing loans—will be posted next week. 12/30/2019

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One Response to The Benefits and Risks of Ethiopia’s Massive Loans

  1. Abiy is the pimp we all need to be greatfull for him in this time . we got him as a pimp willing to pimp us out. We got no better pimp if we did we would have known but since he is all we got, let him him be the pimp since pimping isn’t easy . When it comes down to it we get the big piece of the pie as we pristitutes always do regardless who pimps us , We are not diasporas. We are world-class Ethiopian prostitutes that are in finance that generated 90+ Billions USD to TPLF in the last 28 years now continue to generate more for our pimp Abiy we came up 10+ Billion USD for our great Pimp in 2020.

    Meles Zenawi called those Ethiopians that don’t support him diasporas. If you support him Meles pretends you are some other world-class human not diaspora.
    Meles called us those that work/ prostitute ourselves like Monica lewensky and Bill Clinton in world Bank IMF anyday all-day who support TPLF money monger fools world-class not diasporas, definitely not diasporas, regardless we those that worked in Bretton Woods affiliated NGO UN etc are the once that funded Meles Zenawi since he convinced the whole world TPLF held all Ethiopia hostage for ransom, we paid him and we were able to benefit in the meantime with salaries so up there paid to us from Bretton Woods which they wouldn’t paid us otherwise even if we prostituted ,Meles was the P I M P as we know Abiy is who we all hoped for NGO UN etc workers know it.PM HD wasn’t .
    Now I am retired I tell all “diasporas” , you don’t call yourselves diasporas because even EPRDF changed its name, call yourself the “not prostitutes” or something similar.

    Ethiopians working to Bretton Woods are world class prostitute’s and we are proud of it, each second even after retirement.

    Prostitution is the oldest profession in Ethiopian history.

    Beaberq
    January 5, 2020 at 12:31 am
    Reply

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