THE “FISH RAIN” HOAX AND OTHER PREVIOUS BOGUS STORIES AS DIVERSIONS FROM POPULAR PROTESTS

This is the second and final piece on my observations on amusing bogus stories by EPRDF propaganda.  Creating hoaxes has been a familiar tactic the EPRDF propaganda machine has utilized for quite long time. Two hoaxes have circulated during the last week.  I have reason to suspect these hoaxes circulating in the horn of Africa during the last two weeks could be part of such scams regularly being churned out by the Woyane security to divert public attention from the unfolding Oromo Protests.

One is related to “fish rain” in Dire Dawa.  The other suspicious hoax was the “Eritrean polygamy law”.  Many people dismiss such things as simple acts of hoaxes news being released by a group of silly individuals just for fun.  But when we examine the timing of such releases and possible motivations, then things would start making sense.  For the regime in Addis Ababa, it pays to create hoax messages as long as such news can engage and divert the attention of a good number of unsuspecting individuals.  In the past, I have developed a habit of taking note of similar hoaxes generated by the regime’s propaganda machine. I have shared one such story in my previous blog post entitled FABRICATING STORIES: THE ETHIOPIAN REGIME’S “GOLDEN RULES” TO GET ITSELF OFF HEADLINES. In this piece, I will share three more suspicious stories.

This afternoon, as I conclude this piece, and before I posted it, I came across a twitter message that Ethiopia’s Health Ministry has called a press conference on H1N1, swine flu, and Zika viruses.  It is highly likely that they will deliberately put Ethiopia in a high risk category. The motivation are there:  The primary purpose being shifting attention from the Ongoing domestic protest as well as seeking funding for surveillances of these deadly viruses.

 **********

Addis taxi, An encounter

This one falls in a different category.  For someone who is not aware of the motives behind the story, it can be heartbreaking, one can easily fall in the trap set up by the spin doctors – getting captivated by the story and hence caught up in a string of passing the information to each other through formal or informal means.  This is exactly what the spin doctors want – disengage the domestic audience from the ongoing tragedy, deflecting the attention of the domestic audience.  However, for those who can spot the trick, such stories would still have an entertainment value, a short comedy patched together by a novice writer.

TaxiHere is the story whose setting is an Addis Ababa mini-bus taxi travelling from Bole to Qality carrying 12 passengers, whose final destination is far away regions.  A middle aged man was interested in striking conversation with a young man, the driver’s assistant.  The conversation went beyond a simple act of breaking the ice because the middle aged man continued to ask a series of very personal questions:

 Man:  What is your name?

Boy:  Binyan

Man: Your father’s name?

Boy: Seyoum

Man: Birth place?

Boy:  Why do you keep asking these questions, are you a policeman?

Man: No, I am not a policeman, but I am just interested in knowing about you!

Boy: Well, I am born in Debre Zeit (30 km South East of Addis) but I moved to Addis Ababa about 10 years ago.

Man:  But why did you leave Debre Zeit, and who are you living with here in Addis?

Boy:  when I was a little boy of 5, my father joined the army, abandoning  me and my mother.  My mother was very poor, so she had to work as a maid to support me.  When I was 10, she brought me to Addis, left me with her sister, got married and moved to Asebe Teferi (a town about 230 km East of Addis Ababa).  I have been living with my aunt ever since.

Man: what is the name your mother?

Boy: Mekedes Shiferaw.

At this point the man could not hold on to his tears any more.  The rest of the passengers were shocked, the driver slowed, moved to roadside, and then inquired what was going on.

The man explained: “I am crying because I just found my son.  My name is Seyoum Tefera.  22 years ago, I had a son with Mekedes Shiferaw.  Life was very tough back then.  When my son was 5 years old, I had to join the army in 1990. E. C.   When I returned to Debre Zeit eight years later, I was told my wife married and moved to unknown location.  I have desperately been looking for my wife and my son ever since.  Now I talked with this boy and everything he said confirmed that he is my son. Look at his hair, his face, and every bit of his look resembles mine. So now after 17 years of separation I found my son in this taxi, that is why I am crying!”.  The father and son hugged each other and cried. The rest of the passengers clapped to celebrate the miracle they just witnessed.

This story was written in Amharic and posted on Dire Tube on 20th December 2015. It is now widely circulating on social media.  By the time I began to write this piece, the news item was “liked” by 6,124 and “shared” by  1,347 Facebook users.

A heart breaking story indeed.  Whether or not this is an authentic story is anybody’s guess.  In my view, this falls in the category of suspicious story that can be safely listed with EPRDF’s fabricated stories.  I immediately suspected this story was made up. I had a very strong reason to be suspicious about the authenticity of this story.  My curiosity led me to trace the origin of the story.  Sure enough, I traced this story back to none other than the Ethiopian Broadcasting Corporation, actually it was written by a journalist working for EBC FM 97.1 radio station. The fact that EBC was the original source simply strengthened my suspicion but it may not be a sufficient evidence to confirm that story was a fabricated lie.

The other piece of evidence I can adduce is related to the motive for fabricating such a sensational story.  For this we need to look at the exact date when this story was released. December 20th, that is at the height of the Oromo uprising.  By then both domestic and international public opinion was such that the image of the regime was already tarnished.  The fabricated story is meant to divert attention of the public and soften the hearts and minds of at least some domestic audience. The Ethiopian people were captivated by the larger scale savagery that was unfolding in towns and villages throughout Oromia.  This kind of story needed to be fabricated to disengage and shift the public attention from the real tragedy, the massacre of hundreds of Oromos.

*****

The Lion Miracle

I vividly recall the day yet another fabricated story was released around mid-June 2005.  When it was known that the election was stolen, the widespread protests against the stolen election results were met with brute forces and dozens of demonstrators were massacred at different locations.  Ethiopia stayed in the headlines of most media outlets. It was then the EPRDF unleashed its spin-doctors to replace the headlines with another bogus story.  The so called lion miracle was made up.  This one was met with astonishing success, perhaps a pleasant surprise to the EPRDFites themselves.  Most major world media outlets were immediately captivated with this fabricated story.

LionMiracleThe fictitious story runs something like this. The BBC headline at the time was “Kidnapped girl ‘rescued’ by lions: A pride of lions has rescued a girl from her kidnappers in rural south-west Ethiopia, according to police.” BBC elaborated: “A 12-year-old girl was snatched by four men on her way home from school early in June. A week later, kidnappers were moving her with police in pursuit when three lions encountered the group and chased the men off, local police said. The lions stayed with the girl without harming her, before departing as police searching for her came near. Sergeant Wondmu Wedaj told the media from Bita Genet, some 560 kilometres (348 miles) south-west of the capital, Addis Ababa, that they found the girl alive but shocked and terrified.”

Intrigued by the amazing story, NBC invited a wildlife expert who described the situation as “a young girl whimpering could be mistaken for the mewing sound from a lion cub, which in turn could explain why they didn’t eat her”.

This spin-doctors selected this topic because “abductions for forced marriage” is something that Ethiopia has most frequently cited in United Nations led global gender and development rhetoric.  NBC made a reference to this element as: “Kidnapping young girls has long been part of the marriage custom in Ethiopia… The United Nations estimates that more than 70 percent of marriages in Ethiopia are by abduction, practiced in rural areas where most of the country’s 71 million people live.” Incidentally, multilateral agencies as reputable as UN take such ridiculous statistics and report it.  Ethiopians recognize that the problem of abduction does exist but it is madness to put the figures to such abnormally high level.

Statistical lie is one of the scams of the EPRDF era, which is deliberately churned out to attract funding from unsuspecting bilateral and multilateral agencies.

The lion miracle attracted the attentions of many other global media including fox news , the Guardian, science forum, and many others, each seeking some expert opinion on the rather unique situation “emerging” from Ethiopia, applying fancy stuff like artist impressions (e.g. the third picture in the above collection) of what it looks like for a poor girl being looked after by a huge lion!

The fact of the matter is the explanation of the situation was supposed to be sought in the behavior of the EPRDF government and its communication apparatus, specifically noting the exact dates that sensational but suspicious sounding news items released are the immediate aftermath of landmark political and social upheavals.

******

Ethiopia’s bird flu that never-was

It proves useful to begin by describing the context for the fake bird flu story released early December 2005.

BirdsFirst, I approach this by highlighting the timeline of bird flu pandemic.  First, the first patient of human cases of bird flu was recorded and alarming level of its re-appearances were reported in Hong Kong in 1997 and 2003 respectively.  The incidences of the pandemic kept rising throughout 2004 and 2005, spreading with rising frequency in westerly direction and affecting most far east and South Asian countries.  Indonesia, the nearest toe the western world from among those affected, reported an incidence in December 2005.  The global media very closely followed and reporting the alarming rate at which the pandemic was moving in space and time, progressing rapidly toward the Western World.  Epidemiologists all over the world were dispatched to predict the likely geographic routes the pandemic might pass through on its way.  For the purpose of this discussion, it is critical to note that the experts reached a consensus that Ethiopia and Kenya were at high risk, due to seasonal migratory birds that arrive in the Rift Valley.

Second, it is significant to note that the fake bird flu incidence was announced when the upheaval in the aftermath of the 2005 election was at its peak.  The general election was held on May 15, 2005. On May 16, 2005, it opposition claimed that the tallying process was jeopardized and the vote was rigged. The EPRDF government declared a state of emergency, outlawed any public gathering, assumed direct command of the security forces, and replaced the capital city police with federal police and special forces drawn from elite army units. The National Election Bureau Ethiopia (NEBE) was required to announce the official results on 8 June but after a few rounds of revisions NEBE announced final results on September 5 declaring that the EPRDF controlled the majority vote.  Widespread public protests began on November 1, 2005. This was followed by massacres of over 193 protesters and 60,000 opposition supporters were arrested and imprisoned at concentration camps located in several locations.

Needless to say that the large scale tragedy in Ethiopia attracted the attention of major media outlets in the world.  Ethiopia stayed in the headlines of most print media and prime time broadcasts of many broadcast media for much of November 2005, when the mass killings and arrests were taking place.  It was in this context that the EPRDF government announced suspicious dead birds at two locations in Ethiopia during the first week of December 2005.

BBC reported  that “Agriculture ministry official Seleshi Zewdie said the dead birds had been discovered in the eastern Somali region and near the capital, Addis Ababa. He said reports of the dead pigeons over the past two weeks showed that the early warning system established by the government was working. There have been no confirmed cases of bird flu in Africa, but Ethiopia and other east African countries are considered at risk as millions of migratory birds fly there during the European winter”.

However, the timing of this announcement, given the context and the sequence of events discussed above, makes it highly likely that the bird flu case was manufactured by the EPRDF propaganda machine for the purpose of curtailing the length of time the regime would stay with such tarnished image in the headlines of global media.

Ironically, the regime can get too clever targeting multiple objectives with one fabricated story.  In this case, it was EPRDF propaganda machine presented a story which effectively appeared to have reversed the adage – two stones one bird!  Getting itself off the headline is the most straightforward motive. The bird flu was a highly suited story to attract funding from multilateral and bilateral sources in the name of fighting the pandemic from spreading westwards.  There were telltale signs of such motives in the press release by the Minister of Agriculture, who announced the scare.  “We have to investigate, we cannot exclude bird flu until the investigations are completed,” the minister told the AFP news agency. “We are on alert because of the risk of bird flu.” The latter statement is significant, it is meant to lure donors to indicate the Ethiopian government has such an organized and efficient surveillance mechanism.

Sure enough, multi-million dollar funds started flowing into Ethiopia.  Ethiopia’s national avian flu coordination committee has approved a multi-million dollar contingency plan to strengthen preparedness in the event of the disease spreading to the Horn of Africa country. A budget US $124 million covering a three year plan was allocated to the Avian Human Influenza National Coordination Committee. Apparently, this was meant to cover costs of “surveillance systems, stockpiling of essential medical supplies and equipment, as well as systems for building national, regional and local response capacity. It also aims to boost public awareness of the disease, and strengthen laboratory diagnostic services”.

Needless to say that laboratory tests on birds suspected of having died of the H5N1 avian flu virus in Ethiopia in March showed negative results. The government hit two objectives of the regime were successfully achieved:  (a) with avian flu story around, no global media ever returned to unfolding massacres in Ethiopia; (b) considerably large amount of funds was allocated to the regime in Addis Ababa, which projected itself as the “most efficient” in the region in implementing surveillance and control mechanisms to stop spread of the pandemic. Meanwhile, the Ethiopian public were subjected to barrage of awareness campaign, changing the subject away from the ongoing killings and gross human rights violations toward preparedness for the bird flu pandemic.  The ultimate victims were Ethiopia’s small holder farmers whose livelihoods were ruined. Flocks of birds in some small farms were destroyed and the market for poultry and eggs were shattered.

 *****

In this series I confined my analysis to stories whose true nature have not yet been revealed to the public.  For this reason, I deliberately left out fake stories that were already known by the international community.  For instance, the Wikileak Files on recent bombings blamed on Oromos possibly the work of GOE [Government of Ethiopia] and  Ethiopia Bombs Itself, Blames Eritrea.

Even then I could only provide a highlight, and hence I limited my analysis to only four such fabricated stories.  Otherwise, it is beyond the capability of an ordinary mortal to compile a comprehensive list of fabricated stories by the EPRDF spin-doctors during the last two and half decades. There is a substantial element of fabrication in most news items and documentaries being discharged on daily basis by the government controlled broadcast and print media.

In the three pieces, I trust I have shed some light on the nature of news coming from the regime in Addis Ababa.  This is believed to alert the general public and the international community to take with a pinch of salt most news items released by the EPRDF propaganda machine.   Specifically, it is time that the foreign media get alerted and stop being caught up in the web of lies set up by the regime to fool them and the international community.  Foreign correspondents would need to take their jobs a bit more seriously, exercising caution and routinely scrutinizing press releases before they relay them to their global audience.

Additionally, correspondents in Addis Ababa have a public duty to at least occasionally do some investigative journalism to go underneath some suspicious sounding storylines that the regime puts out intermixing with raw propaganda.  I am intrigued that the regime has got away with fabricating exceptionally sensational stories in the middle of very tense social upheavals.

Finally, the analysis in this series may inform the regimes propaganda team that after all at least few people are aware and closely follow the fabricated stories they craft and release at opportune moments.  This may help them think twice when the team contemplates to create the next hoax news.

 

FABRICATING STORIES: THE ETHIOPIAN REGIME’S “GOLDEN RULES” TO GET ITSELF OFF HEADLINES

Episodes of popular uprisings proved to be rare occasions that expose the barbaric nature of the EPRDF government its trigger happy security forces. During such landmark events, the regime finds itself in the limelight of international media, in sharp contrast to the undeserved praises with which the regime has often been showered over the years.

Such occasions have often been accompanied by frantic efforts by the regime to restore its damaged image. The regime dispatches its spin-doctors to fabricate stories in a desperate attempt to get itself off headlines in the foreign broadcast and print media. In order to serve such purposes, highly sensational stories have often been quickly crafted. Surprisingly, the EPRDF spin-doctors have fabricated stories and managed to fool foreign correspondents who easily fell for simple tricks time and again.

 A keen observer of Ethiopia’s current affairs would take news originating from government controlled media with a pinch of salt. In my case, I have often spotted such downright silly stories within few minutes of encountering them.

This is not to say that I have full collection of such fabricated stories; it is a full-time job to accomplish such a task since an army of spin doctors have been working on such fabrications on daily basis. However, it would suffice to highlight a few of such made up stories, those that are manufactured around peaks of social upheavals.

 In this series I will discuss four of them – the first two have been manufactured during the last two weeks in the context of the ongoing Oromo Protests and the last two were fabricated in the aftermath of the 2005 debacles. This piece presents one to the latest bogus stories. The remaining three suspicious stories will be subsequently published separately.

 “Armed” Peaceful Protesters

The EPRDF propaganda machine does not know any limits and bounds within which to conduct the business of spinning the news. The pieces of fabricated news the regime generates often end up being oxymoronic.

 Protesters&ArmsOne such piece came up recently in the context of the Oromo uprising. It is an undeniable fact that the Oromo Protests are extremely peaceful. Protesters rallied often silently with their hands held up high in the air (as shown in this picture).

At times, protesters avoided movements in space, each simply staying stationery on the spot. This is a very powerful demonstration of the fact that the Oromo protests were exceptionally peaceful. Incidentally, the amazingly peaceful rallies did not happen by accident.

It is the result of hard work by charismatic Oromo political leaders, such as Bekele Gerba, who have been raising awareness among the people and commitment to peaceful protests as a mode of Oromo struggle. Clearly, these two images do not go together.

 However, in order to taint the good image of Oromo peaceful protesters, the EPRDF government fabricated an oxymoronic storyline – that amounted to stating an “armed” peaceful protest, more explicitly labeling peaceful protestors as “terrorists”! The regime and its supporters have been busy circulating pictures of gun stockpiles (the kind shown in the picture).

The security forces alleged they confiscated the ammunition from protesters. The is meant to accuse the opposition leaders of leading an armed insurrection. Social media activities quickly established the truth that “the weapons were collected in Western and South Western Shawa from the government’s own local police and village militias at the start of the protest due to fear that they will turn against the government.”

So, the authorities did not only disarm Oromia police and local militia, whom they did not trust any more, but they shamelessly used it as “evidence” for the story they crafted and circulated. The motivation for creating such fabricated stories is clear – the EPRDF elites were uncomfortable with the power of peaceful protests. Armed resistance is the mode of opposition they would like to have because they are armed to their teeth.

They found it convenient to fabricate a bogus story and delude the domestic and international community that Oromo activists were “armed” and hence their security forces caused the bloodbath in “self-defense”. However, as anyone who cared to closely followed Oromo protests knows nothing could be further from the truth. The labeling of peaceful protesters as “terrorists” was the familiar cruel joke, adding insult to injury to Oromos and undermining the intelligence of its audience both domestic and foreign.

 

Ethiopia’s fake economic growth borrows from ENRON’s accounting

More than 70 people have been killed and dozens wounded in ethiopia_growthan ongoing crackdown on peaceful protesters in Oromia. One of the underlying causes of the prevailing tense political situation is Ethiopia’s bogus claim about “miraculous” economic growth in the last decade.

The youth is not benefitting from the country’s supposed growth and doesn’t anticipate the fulfillment of those promises given the pervasive nepotism and crony capitalism that underpins Ethiopia’s developmentalism.

The ruling Ethiopian People’s Revolutionary Democratic Front (EPRDF) came to power in 1991 and briefly experimented with democratic transition. However, a little over a decade into its rule, the party’s former strongman, the late Meles Zenawi, realized that their pretentious experiment with liberal democracy was not working. Zenawi then crafted a dubious concept called, “developmental state.”

Stripped of the accompanying jargons and undue sophistications, Zenawi was simply saying that he had abandoned the democratic route but will seek legitimacy through economic development guided by a strong hand of the state. This was a ploy, the last ditch attempt to extend EPRDF’s rule indefinitely.

Using fabricated economic data to seek legitimacy and attract foreign direct investments, the regime then advanced narratives about its double-digit economic growth, described with such catch phrases as Ethiopia rising, the fastest growing economy in the world and African lioness. The claims that EPRDF has delivered economic growth at miraculous scales has always been reported with a reminder that it takes several decades to build democratic governance. The underlining assumption was that, as long as they deliver economic growth, Ethiopia’s leaders could be excused on the lack of democracy and human rights abuses associated with the need for government intervention in the economy.

EPRDF spent millions to retain the services of expensive and well-connected Western lobbying firms to promote this narrative and create a positive image of the country. These investments were also accompanied with a tight grip on the local media, including depriving foreign reporters’ access if they cross the government line. Ethiopia’s communication apparatus was so successful that even serious reporters and analysts started to accept and promote EPRDF’s narrative on rapid economic growth.

However, a few recent events have tested the truthfulness of Ethiopia’s economic rise. Drought and the resulting famine remain the Achilles heels of the EPRDF government. The government can manipulate data on any other sector, including the aggregate Gross Domestic Product, and get away with it, but agriculture is a tricky sector whose output is not so easy to lie about. The proof lies in the availability of food in the market, providing the absolute minimum subsistence for the rural and urban population.

The sudden translation of drought into famine raises serious questions.  For example, it is proving difficult to reconcile the country’s double-digit economic growth with the fact that about 15 million Ethiopians are currently in need of emergency food aid.

Rampant famine

Except for some gullible foreign reporters or parachute consultants, who visit Addis Ababa and depart within days, serious analysts and students of Ethiopian economy know that authorities have often fabricated economic statistics in order to generate fake GDP growth.  For a trained eye, it does not take a lot to find inconsistencies in the data series. In fact, Ethiopia’s economic growth calculus is so reminiscent of Enron accounting.  (See my recent pieces questioning EPRDF’s economic policies, including anomalies in the alleged achievements of millennium development goals, crony businesses, devaluation, external trade and finance.)

The tacit understanding in using GDP as a measure of economic growth is that responsible governments generate such data by applying viable international standards and subjecting the data to scrutiny and consistency checks.

Unfortunately, these standards are not foolproof; irresponsible governments with mischievous motives can abuse them. There is credible evidence that show Ethiopian authorities deliberately inflated economic statistics to promote feel-good, success stories.

Let’s take the agricultural data, which is timely and topical given the ongoing famine. This came to light recently as the European Union tried to understand anomalies in Ethiopia’s grain market, particularly persistent food inflation which the EU found incompatible with the agricultural output reported by the Central Statistical Authority (CSA) of Ethiopia.

The EU’s Joint Research Centre (JRC) then developed the technical specification for studying the scope of the Cereal Availability Study in order to account for the developments in the Ethiopian cereal markets. The International Food Policy Research Institute (IFPRI) was selected to carry out the study.

growth1Figure 1 (above) compares the EU-sponsored survey and the Ethiopian government’s survey produced by the CSA. I am using the data for 2007/08 for comparison. The negative numbers indicate that the IFPRI estimates were consistently lower than the CSA data. For instance, CSA overstated cereal production by 34 percent on average.  This ranged from 29 percent for maize to 44 percent for sorghum. The actual amount of Teff produced is lower by a third of what’s reported by the CSA.

The research team sought to explain this “puzzle” by examining the growth2sources of the confusion, the methodological flaws that might have led CSA to generate such exaggerated economic data. Toward that end, they compared CSA’s crop yield estimates with comparable data from three neighboring countries:  Kenya, Tanzania, and Uganda (see Figure 2).

From 2000 to 2007, the average increase in cereal yield for these countries, including Ethiopia, was 19 percent. Yet the CSA reported a whopping 66 percent for Ethiopia’s yield growth. The country was not experiencing an agricultural revolution to justify such phenomenal growth.  It is unrealistic that Ethiopia’s yield growth would be greater than the neighboring East African countries, particularly Kenya, where the agricultural sector is at a much more advanced stage. If anything, the reality in Ethiopia is closer to Uganda, which did not report any yield increase during that period.

This reveals the extents of data manipulation by Ethiopian authorities to create an inexistent economic success story and seeks political legitimacy using a bogus record. We now know the widespread distortions in official statistics on cereal production thanks, in no small part, to EU’s intervention in sponsoring a study and explaining the disparities. Cereals represent only a sub-sector in the agricultural realm. It is likely that worse distortions would be revealed if similar studies were done on Ethiopia’s growth statistics in other sectors, including manufacturing and service divisions.

‘Poverty reduction’

The IMF has praised Ethiopia for achieving accelerated growth with a focus on equity and poverty reduction, a challenging dilemma for most countries. However, a closer look at three interconnected facts turns this claim on its head.

First, as noted above, Ethiopia’s agricultural output has been inflated by 34 percent on average. Second, a 33 percent poverty reduction since 2000 is widely reported. Third, there is a consensus that poverty reduction has happened mostly in rural Ethiopia. Now we put these three facts together and apply a simple logic to establish that the 33 percent poverty reduction is explained by the 34 percent exaggerated agricultural outputs. Notice that it is not by accident that the two percentage points are almost identical. Therefore, the ups and downs cancel each other out. In the best-case scenario, poverty rate must remain at the same level as in 2000.

The World Bank, IMF and other donors have often anchored their conclusions on poverty reduction on alleged changes in the agricultural sector, where the bulk of the poor live and work. Little do they know that the data they used to compute the poverty index comes from agricultural statistics with hugely inflated yield assumptions as shown above.

This raises the question: where has the billions of dollars in bilateral and multilateral aid pumped into Ethiopia in the name of poverty reduction and the millennium development goals gone?

‘The enclave economy’

The ‘Ethiopia rising’ storyline is a standard set by foreign correspondents who often repurpose official government press releases, or report based on the construction projects in the capital, Addis Ababa.

For example, Bloomberg Africa’s, William Davison, often uses the proliferating high-rise buildings in Addis Ababa as tangible evidence of Ethiopia’s double-digit economic growth. In his latest whitewash, Davison writes, “such growth is already visible in parts of the capital, where shopping malls and luxury hotels are sprouting up.” That a veteran reporter for a business website unashamedly passes judgment on economic success by referring to heights and width of buildings underscores his shallow understanding of the country’s social and political fabric.

Here are some of the questions that reporters aren’t asking and seeking answers for:  Who owns those building?  Where did the investment money come from?  Are there any firm linkages between these physical infrastructures and the rest of the Ethiopian economy? I have partially answered some of these questions in a previous piece and will soon provide additional insights.

For now, I would like to draw attention to the existence of an “enclave economy” within the mainstream Ethiopian economy. This enclave is made up of highly interconnected crony businesses, which are owned and operated by Tigrean elites, who also have a tight grip on the political and military command structures. Take, for example, the Endowment Fund for Rehabilitation of Tigray (EFFORT), a business conglomerate affiliated with the Tigrean People’s Liberation Front (TPLF). EFFORT has a humble origin in the relief and rehabilitation arm of the TPLF. However, it has undergone amorphous growth and now controls the commanding heights of the Ethiopian economy. By some estimates, EFFORT now controls more than 66 business entities. Since its “rehabilitation” function is obviously redundant, I have previously suggested, “it should instead be renamed as the Endowment Fund for Rendering Tigrean Supremacy (EFFORTS).”

The EFFORTS controlled enclave and related military engineering complexes have created a semi-autonomous economy in Ethiopia. They made smart choices and specialized in engineering and construction businesses. This means they do not have to rely on the Ethiopian public for their products; instead, each specialize in separate industrial branches and buy from each other and also sell to the government, which is also in their hand. The huge government infrastructural projects necessitated by the “developmental state” model create business opportunities for these engineering companies.

The enclave economy is only loosely linked to the mainstream economy and it does not benefit the bulk of the Ethiopian people in any meaningful way. The luxury hotels and supermarkets that Davison refers to cater for the needs of the affluent business classes, their families, and the expatriate community.

In other words, Ethiopia’s miraculous economic growth, if it in fact exists, must have happened only in the enclave economy. Statistically, it is possible to generate a double-digit economic growth at the national level through a combination of some real astronomical growth in the enclave component and stagnation or declines hidden, through some accounting tricks, in the rest of the economy.

Lock-in style of reporting

Unfortunately, the unquestioned reporting on Ethiopia’s economic success has continued. Even the EU study appears to have been shelved, or deliberately ignored despite the significant findings. Even as a fifth of the population is in need of emergency aid, the World Bank is sticking with the outdated data and has recently released a sensationalized report entitled “Ethiopia’s Great Run: the growth acceleration and how to pace it.”

The ensuing famine has shaken the foundation of Ethiopia’s growth narrative, yet western NGOs and media outlets appear to suffer from the lock-in effect in adopting consistent storylines. They continue to link and refer to the World Bank, IMF and others reports and indexes by multilateral organizations.

That’s why we continue to see comical headlines such as “Ethiopian Drought Threatens Growth as Cattle Die, Crops Fail,” which assumes that Ethiopia’s growth is actually occurring. This acquiescence does not only display ignorance, but it also underscores an effort to evade accountability for previous mistakes and failure to report accurate information.

In a recent interview with The Ethiopian Reporter, Prime Minister Hailemariam Desalegn made a rare and fateful admission: “if we crave for too much praises for our achievements, we might run the risk of undermining the challenges we are facing. These challenges could grow bigger and become irreversible and that would be detrimental.”

Over the past 25 years, the EPRDF worked tirelessly to create a distorted image of the country and began craving and lobbying foreigners for praises.

Enron’s success involved an elaborate scam, but the firm was named “America’s Most Innovative Company” for six consecutive years. This fame did not stop Enron from crumbling. EPRDF’s fate will not be any different. The Oromo uprising has already started the unraveling of its elaborate scams devised to attain legitimacy on the back of non-existent economic and democratic advancement.

Note: this piece was originally published on opride.com, December 19, 2015

The great unraveling: a political endgame is underway in Ethiopia

(OPride) – The finale of the Ethiopian regime’s tragic political drama is being played out on the streets of Oromia, Ethiopia’s largest state. Oromo students have been ratcheting up tensions in ongoing protests that began in early November. The protesters oppose the encroaching of Addis Ababa, a federally administered city, into Oromia’s jurisdiction, which has already evicted hundreds of thousands of Oromo farmers from their ancestral lands.

The dust has not yet settled to clearly predict what happens next, but the endgame appears imminent. It is important to start taking stock of what has been happening over the last two and a half decades.

This piece provides a broad overview of the Machiavellian political and economic policies of Ethiopia’s ruling party. The first of two-part analysis discusses the ongoing dramatic showdown between Oromo students and Ethiopian security forces, as well as the circumstances that triggered the standoff, including Addis Ababa’s deceitful experiment with federalism and democratization.

The Oromo uprising

The dramatic events unfolding in numerous districts and townships across Oromia represent an unprecedented popular uprising in modern Ethiopian history.  The uprising began on Nov. 12,  in Ginci town, 81 kms southwest of the capital. This was set off by transfer in ownership of a school playground and stadium by local authorities and the clearing of pristine natural forest near the town to make way for investors.

Ginci is located 32 kms from Ambo, the site of Oromo resistance for many years and where security forces killed dozens of peaceful protesters in 2014.

The protests in Ginci were suppressed brutally, but the resistance spread to other parts of Oromia like a forest fire, galvanizing university, high school and even elementary school students.  As usual, security forces responded heavy-handedly, killing at least 50 people. The death toll is growing by the hours and is estimated to be higher. Hundreds of protesters have been injured and taken to hospitals and hundreds more are jailed in a heightened crackdown.

The Oromo uprising has expanded to include the wider Oromo public who intervened to stop security forces from firing at young and unarmed students. In most cases, the public joined in because soldiers refused to heed their call for restraint and demands for proper burials of dead students.

Protesters are blocking roads in many localities to obstruct the movement of security forces, but the protests have remained largely peaceful.

A grand land grab scheme

The main trigger for the protesters the so-called “Addis Master Plan,” which they refer to as the “Master Killer.”

Addis Ababa is located in the Oromia state, but it was unjustly made an independent federal region, with a constitutional guarantee for Oromia’s “special interest” over the city. The rationales for this were that: Addis Ababa is located in the heart of Oromia, Oromo resources are used in its development and surrounding Oromo communities are exposed to severe urban pollution.

The special privilege remained on paper, but Oromos continue to suffer from the city’s expansions.  For instance, most Oromia rivers passing through or near Addis Ababa have been poisoned to a catastrophic extent so much that fishing in them has become a thing of the past. The livelihoods of downstream Oromo farming communities are completely destroyed. Addis Ababa has aggressively encroached into Oromia almost unrestricted, forcibly evicting native Oromo farmers from their ancestral lands with paltry compensations far below the value at which the authorities resell the land to private developers.

The number of farming households evicted from and near Addis Ababa has not been properly documented, but it’s estimated that about 150,000 farming households were displaced in a single round of eviction campaign in the early 2000s. Since then, evictions has intensified as the city expanded horizontally in all directions, which means, at least, a million households have been dislocated over the last decade. This estimate does not include widespread evictions taking place elsewhere in Oromia, for instance, to make way for flower farms and other export-oriented investments in the vicinity of Addis Ababa.

The convenience to foreign businessmen in accessing the Ethiopian Airlines services for exports was given a priority over the lives and welfare of millions of Oromo farmers. As a result, once thriving farming communities have become destitute, thrown onto the streets and now make a living by working as daily laborers or beggars on the streets of Addis Ababa.

The ill-fated master plan was an effort to further entrench the city’s expansion. Government technocrats without any public participation prepared it. If implemented, the plan will enlarge the city by 20 times its current size. Clearly, the master plan was a deliberate act to weaken Oromia’s status within Ethiopia’s federal structure. It will divide the state into two parts, rendering it a non-viable regional unit.

The government “spin doctors” are busy fabricating distorted stories to misrepresent the popular opposition as anti-development. However, as discussed elsewhere, the ploy to expand the city is nothing more than a grand scam aimed at grabbing Oromo land by government cronies, private developers, and corporations that aspire to maximize their own profits at any costs.

‘Illegitimate parliament’

The dramatic events of last month underscore the fact that the regime in Addis Ababa lacks legitimacy and popular mandate. In general elections last May, the EPRDF declared that it won 100 percent of parliamentary seats. By declaring a total victory, the regime shot itself in the foot – inadvertently exposing its abuses of the electoral system and process.

The gap between the rhetoric and the reality becomes apparent when we juxtapose this total victory against extraordinarily large turnouts at opposition rallies during the campaign period. EPRDF reluctantly “allowed” opposition parties to campaign for a few weeks, presumably to create a façade of a free and fair election in Ethiopia.

On the campaign trail, the Oromo Federalist Congress (OFC) galvanized the youth, attracting huge crowds in all corners of Oromia. It is a gross understatement to view EPRDF’s victory as “stolen election” even by the standards of its previous polls. The bald-faced announcement was a humiliating insult to voters. EPRDF cadres displayed an utter contempt for the very people they claim to govern.

The gap between EPRDF’s words and deeds has become ever wider. Steadfast Oromo resistance has frequently led to widespread killings and imprisonments. Human right groups have relentlessly documented some of the atrocities committed by EPRDF leaders. This includes the Amnesty International’s landmark “Because I am Oromo” report that provided compelling evidence that “being an Oromo is a good enough reason to be incriminated and put in jail under the EPRDF government.”

In part II of this piece, I will examine the unraveling of the EPRDF rule, focusing on the bogus claim around Ethiopia’s miraculous economic growth over the last decade.

Note: This piece was originally published on http://www.opride.com (http://www.opride.com/oromsis/articles/opride-contributors/3806-the-great-unraveling-a-political-endgame-is-underway-in-ethiopia)

Is devaluation of birr the answer to Ethiopia’s economic troubles?

(OPride) — In a new report released last month, the World Bank recommended a 10 percent devaluation of the Ethiopian birr, saying depreciating birr can “increase export growth by more than 5 percentage points per year and increase economic growth by more than 2 percentage points.”

Ethiopia’s external trade position has rapidly deteriorated in recent years. In 2012, payments for imports exceeded receipts from exports by about $8.1 billion. In 2005 the deficit in commodities trade was $1.6 billion but this gap widened by two-fold by 2012, and reached about 7 percent of Ethiopia’s Gross Domestic Product.

As such, the devaluation of birr alone may not improve Ethiopia’s troubles in external trade. If any improvement is to be made, authorities should first rein in the entrenched policy biases and power structures in Ethiopia that underlie poor export performance that is grossly overlooked in the World Bank report.

Devaluation and exports

The World Bank researchers acknowledge that they arrived at this recommendation after running an extremely simple theoretical analysis, which they then juxtaposed with Ethiopia’s trade data. Under this textbook approach, and leaving the economics jargon aside, devaluing birr means reducing its price in foreign exchange markets, where currencies are bought and sold like any other commodity.

Reducing price of any commodity is bound to increase demand for it. So, after devaluation, demand for birr by foreigners is expected to increase. For instance, currently the official exchange rate for 1 USD is 19.745 birr. The recommended 10 percent devaluation would increase the quantity of birr offered per 1 USD to about 22.

Since the ultimate need for the birr by foreigners is to purchase Ethiopian goods and services, the depreciation of the birr will immediately translate to making Ethiopian exports cheaper in USD (or any other foreign currency for that matter). For instance, in June 2014 Ethiopia was selling a ton of coffee at $4,360 but after devaluation the price will fall to $3,924. The faith in the effectiveness of devaluation as a means of promoting coffee exports follows from a belief that Ethiopia will become more competitive by lowering the price of its exports. The hope is that, if all goes well, coffee buyers may turn to Ethiopian coffee.

Policy context

When exports become cheaper, exporters may incur losses from a given quantity. But if larger quantity is sold then gains will more than compensate for losses incurred. So, devaluation is justified if lack of demand for Ethiopian exports is the only obstacle and there are no troubles on the supply side.

However, Ethiopia does not have a stockpile of exportable commodity waiting to be sold. Still worse, there are entrenched policy biases against exportable products such as coffee and its producers raising concerns that export supplies may not increase in the near future.

Thus, the most likely immediate effects of devaluation will be deterioration in revenues from a given quantity of available exports. The power imbalance between coffee exporters and coffee growers is such that most of the reduction in revenue will be directly passed to coffee farmers, who will be the ultimate victims.

The World Bank seems to have grossly overlooked these most fundamental policy contexts. It is essential to examine in some detail the policy bias against export producing regions and sectors.

Regional policy bias

Public investment decisions need to be based on potential returns. A dollar invested in resource rich region generates much larger returns and more quickly than if it is invested in resource poor regions. It pays to initially invest in resource rich regions, recover the returns and then worry about ways to subsidize poorer regions on equity considerations. After all, wealth has to be created before it can be distributed.

Ethiopia’s ruling party has turned this logic upside down by adopting a lopsided development pattern whereby the government leads the private sector by example. There are strong complementarities between public and private investments.

Ethiopia’s public investment is hugely concentrated in and around the capital Addis Ababa and a few selected regional centers such as Mekelle, Hawassa and Bahir Dar. The private sector have followed suit and most economic activities have gravitated to these centers. However, these rapidly growing urban centers make little, if any, contribution to Ethiopia’s commodity exports. On the other hand, resource rich areas, e.g., Oromia’s coffee growing regions, have received little attention in terms of public investments — giving private investors no incentives to move into such resource regions.

To illustrate this point, let’s briefly contrast the economic fortunes of Jimma and Mekele cities. Jimma is located in the Oromia state, 335 kms southwest of Addis Ababa. Situated in coffee heartland, Jimma is Ethiopia’s economic nerve center. The bulk of Ethiopia’s coffee exports come from this region. However, the EPRDF regime has long abandoned the city and other nearby towns such as Agaro, relegating them to a status of decay.

By government’s own statistics, between the last two censuses (1994 and 2007), the population of Jimma city grew by 2.8 percent per annum, far lower than the national average annual growth rate. Resource rich region such as Jimma were supposed to attract workers seeking employment opportunities. But since no effort has been made to create jobs and attract more talent, Jimma’s population saw only natural increments — the number of births exceeding deaths.

A few months ago I travelled to Jimma. While I was fully aware of the fact that the region was long neglected, nothing could have prepared me for what I witnessed upon arrival. Dismayed by Jimma’s total stagnation, I went to Agaro hoping to get a better perspective. If I was dismayed by my observations in Jimma, I was shocked and disturbed with my encounters in Agaro. I confided to a friend about my observations in Agaro. He referred to a local saying (in Amharic): “Agaaroo diro moote, ahun gin Jimma betam tamowal,” roughly meaning “Agaro died long ago, while Jimma is now seriously ill.”

By contrast, in 1994, Mekelle, the capital of Tigray state, had about the same level of population as Jimma. However, between 1994 and 2007, with an average annual growth rate three times Jimma’s (9.4 percent), Mekelle’s population more than doubled. The growth was largely a result of huge investments and job creations in Mekelle — people followed jobs and jobs followed people in a circular causation.

A handful of early public investments were more than enough to trigger the town’s explosive growth. Mekele received colossal amounts by Ethiopian standard — an international airport, became a hub for a network of government-affiliated conglomerate called EFFORT, an expanded Mekelle University, and etc.

Today, the economic boom in Tigray is so crucial that the Ethiopian Airlines maintains four daily flights between Mekelle and Addis Ababa. Ironically, unlike Jimma, Mekelle or Tigray do not make any contribution to Ethiopia’s exports. In other words, the return to Ethiopia from investing in Tigray is next to nothing.

Sector policy bias

Sound economic development is accompanied by structural transformation, with a rising relative share of manufacturing. Figure 1 displays structural transformation in the Ethiopian economy under the EPRDF regime. Between 1991 and 2012, the share of agriculture declined from 63 to 49 percent. However, share of manufacturing in GDP remained stuck at around 3.5 percent. In other words, Ethiopia’s much hyped economic miracle did not increase the relative share of manufacturing sector by even half a percentage point in more than two decades.

EthiopiaTrade

The EPRDF achieved an extremely shallow structural change. This led to the relative shrinkage of the commodity producing agricultural sector. In contrast, the share of the service sector expanded from 30 to 41 percent. The non-manufacturing industrial sector, which includes the state-run energy and telecommunication sectors, expanded only by about 2 percent.

The bloating service sectors are almost entirely dominated by government owned businesses such as the Ethiopian Airlines and other service sectors such as the military where salary payments for civil servants are counted as part of GDP.

These figures reveal the extent of inherent policy biases against production of tradable or exportable commodities in Ethiopian economy. EPRDF’s shoddy policies simply bypassed a transition from agriculture to manufacturing and directly entered a service-based economy. This means ignoring the role of agro-processing, e.g., value addition to coffee production rather than exporting raw beans. The EPRDF have moved the economy consistently in undesirable direction — even the shallow structural transformation was accompanied by a relative shift from private to public ownership.

The diminishing role of coffee in Ethiopia’s exports explains the situation. Given the policy bias against coffee producing regions in public investment allocation and the absence of incentives for private investors to grow or process coffee inside the country, the share of coffee in Ethiopia’s commodity exports plummeted from 65 percent in 1995 to 32 percent in 2012. Meanwhile, the share of cut flowers increased from zero to 6 percent during the same time. Ethiopian Airlines began to fill the gap in the foreign exchange revenues.

The recent dramatic structural changes in Ethiopia must be understood in its proper politico-economic context. The regional and sector biases are deeply rooted in Ethiopia’s simmering political tensions. Coffee is mostly grown in the Oromia region, a hotbed of political opposition to the EPRDF government. Therefore, both the regional and sectoral policy biases are part of the regime’s overall strategy to progressively weaken Oromia’s continued economic significance.

The deliberate creation of a nexus of export enclave built on interdependencies between flower farming and Ethiopian Airlines is meant to destroy the livelihoods coffee farmers in Oromia and other resource rich regions.

It is disturbing that the World Bank is now consciously or unknowingly caught up in this quagmire. It is hard to imagine their experts were unaware of the political machinations that underlie Ethiopia’s recent export sector developments. The cover of the Bank’s report bears wrapped up cut flowers. That’s not all. The authors shower praise on the regime for dramatically increasing the number of flower farms in less than a decade.

However, it is unclear to what extent they understood that those red roses were grown by destroying livelihoods of hundreds of thousands of Oromo farmers that were forcibly evicted from their ancestral lands. The report contains a nod to jobs created by the flower farms but makes no mention of the jobs that were destroyed to create the farms.

The process of job destruction and then creation was a negative-sum-game. The workers moved from sustainable organic family farms to unsustainable and chemical infested flower farms, exposing them to extremely damaging health hazards. The long term risks on the flower farms is not limited to human health but also the soil and wider environmental pollution, which will take hundreds of years to remove. Sustainable development, which World Bank advocates, stands on three legs: economic, social and environmental. And yet, the Bank’s mission to Ethiopia seems to recognize sustainability that stands on only one footing: economic gains to few elites.

Trade data

The World Bank’s recommendation for devaluation of the birr was based on statistical analysis using Ethiopia’s trade data. But Ethiopia’s trade data is simply not reliable to undertake such statistical estimations to make sound policy recommendations.

Fig 1 b_400_370_16777215_00_images_tradedata

To illustrate the fallacy of the Bank’s analysis, let’s look at Ethiopia’s trade value in recent years. First, there is no easy way to tell the size of Ethiopia’s exports or imports. The discrepancies between export and import trade data is displayed in figure 2. In the graph, “comtrade” refers the figure reported by Ethiopia to the United Nations Statistical Division (UNSD) while the “total trade” represent figures compiled by the UNSD using mainly the International Monetary Fund (IMF) financial statistics.

For most countries, the two data series fall within close ranges, some discrepancies are inevitable but differences often fall in single digit percentage points in either direction.  This was the case even for Ethiopia until around 2005, but then the trade data series starts to show significant degree of abnormality.

If we start with exports, the value of goods and services registered by Ethiopia as exported have consistently exceeded the actual total export earnings registered by the IMF. For instance, in 2011, Ethiopia exported goods worth about $2.6 billion but IMF’s records show only $1.9 billion.

Fig 2 b_400_370_16777215_00_images_import

The discrepancies between import data series are even worse. The ways the discrepancies occur are systemic. For exports what government have reported have consistently exceeded IMF records but the reverse is true for imports. For example, in 2011 IMF records show three times larger imports than the Ethiopian government records.

The systemic and suspicious discrepancies in trade data points to the existence of illicit trade for which Ethiopia is already known. Foreign trade has been used as a vehicle to transfer finance abroad. This is commonly done through trade mis-invoicing.

In other words, the export revenue reported by the government have consistently exceeded IMF records, implying that less than the full amount of export revenue was actually been channeled back into Ethiopia. Besides, payments abroad in the name of imports seem to considerably exceed the true value of goods and services actually shipped to Ethiopia.

In its 2014 report, the Global Financial Integrity estimated that the cumulative illicit financial flow out of Ethiopia between 2002 and 2011 was over $20 billion. That is an average of about $2 billion per annum, nearly twice the average annual export revenue earnings from commodity exports during the period.

Devaluation and imports

In contrast to exports, devaluation will increase prices of imported goods in the domestic market. In theory, higher price can discourage imports as consumers shift from foreign goods to domestic products.

In practice, however, the situation is a lot more complicated. Most items Ethiopia imports are not domestically produced, e.g., capital goods and industrial inputs. Besides, a good proportion of Ethiopia’s payments abroad go to imports of military hardware although this is safely hidden in the midst of statistical data through aggregations or is reported as statistical omissions. It is unrealistic to expect that the government would reduce spending on such strategic items simply because their prices have increased.

Under such circumstances, there will be no change in the quantity and types of imports but just that they will be sold at price much higher than warranted by the rate of devaluation. This happens because of the power imbalances between importers and consumers. A handful of import companies enjoy an oligopolistic status, they conspire and fix prices to exploit the general public. In fact, all previous devaluations of the birr were followed by higher inflations because importers increased prices of all goods and services, not just imported ones, in part justifiably so since imports constitute a bulk of inputs (e.g., petrol). This makes Ethiopia a seller’s market, where buyers are too powerless because they do not have alternative suppliers for imported products.

Ultimately, the essential prerequisites for devaluation to become effective are lacking. As a result, Ethiopia’s envisaged devaluation is unlikely to lead to improvements in the country’s foreign trade position. Far from producing intended benefits, devaluation is likely to exacerbate Addis Ababa’s economic troubles.

Finally, while the media singled out devaluation, the Bank also made a number of other interrelated recommendations. These include increasing value-addition in the agricultural sector through agro-processing and easing constraints on regulatory frameworks and distributive channels.

Ironically, the Bank’s researchers merely listed the recommendations without any sense of prioritization or sequencing of policy reforms. For instance, it is pointless to devalue birr without putting in place incentives for businesses who do value-addition (e.g. coffee processing), removing numerous hurdles for starting new businesses and opening up opportunities for foreign trade in import and export businesses to reduce the dominance of oligopolistic market.

A focus on value-addition to exportable commodities would have addressed the aforementioned regional and sector biases. For instance, coffee-processing plants should be located near production areas (e.g. Jimma), not least because coffee is normally collected wet and loses weight as it dries and gets processed.
Ethiopia’s State Minister of Finance Ahmed Shide recently stated, “A decision to adjust the exchange rate would be made on the basis of what its wider impact on the economy would be.” However, there’s an ominous prospect that the EPRDF will jump onto devaluation, leaving aside other more important and far-reaching recommendations.

I expect this will happen for the following reasons. First, past experiences suggest that the Ethiopian government does not hesitate to devalue the currency even when the conditions were not right. In fact, it is very likely that the regime was behind the idea, taking the initiative and indirectly engineering the recommendations.

Second, EPRDF politicians control a network of party affiliated business conglomerates that dominate the bulk of import and export businesses. These importers and exporters will be the net beneficiaries of devaluation but its adverse consequences will be borne by the general public both consumers and producers.

(Previously posted on http://www.opride.com on August 19, 2014)

Crony capitalism and the myth behind Ethiopia’s economic miracle

Over the last decade, Ethiopia has been hailed as the fastest growing non-oil economies in Africa, maintaining a double-digit annual economic growth rate. The Ethiopian government says the country will join the middle-income bracket by 2025.

Despite this, however, as indicated by a recent Oxford University report, some 90 percent of Ethiopians still live in poverty, second only after Niger from 104 countries measured by the Oxford Multidimensional Poverty Index. The most recent data shows an estimated 71.1 percent of Ethiopia’s population lives in severe poverty.

This is baffling: how can such conflicting claims be made about the same country?  The main source of this inconsistent story is the existence of crony businesses and the government’s inflated growth figures. While several multinational corporations are now eyeing Ethiopia’s cheap labor market, two main crony conglomerates dominate the country’s economy.

Meet EFFORT, TPLF’s business empire

The seeds of Ethiopia’s economic mismanagement were sown at the very outset. We are familiar with rich people organizing themselves, entering politics and protecting their group interests. But something that defies our knowledge of interactions between politics and business happened in 1991 when the current regime took power.

Ethiopia’s ruling party, the EPRDF, came to power by ousting the communist regime in a dramatic coup. A handful of extremely poor people organized themselves exceptionally well that they quickly took control of the country’s entire political and military machinery.

In a way, this is analogous to a gang of thieves becoming brutally efficient at organizing themselves to the extent of forming a government. Once in power, the ruling Tigrean elites expropriated properties from other businesses, looted national assets and began creating wealth exclusively for themselves.

This plan first manifested itself in the form of party affiliated business conglomerate known as the Endowment Fund for Rehabilitation of Tigray (EFFORT). EFFORT has its origin in the relief and rehabilitation arm of the Tigrean People Liberation Front (TPLF) and the country’s infamous 1984 famine.

As reported by BBC’s Martin Plaut and others, the TPLF financed its guerilla warfare against the Dergue in part by converting aid money into weapons and cash. That was not all. On their way to Addis Ababa from their bases in Tigray, the TPLF confiscated any liquid or easily moveable assets they could lay their hands on. For instance, a substantial amount of cash was amassed by breaking into safe deposits of banks all over Ethiopia. Those funds were kept in EFFORT’s bank accounts. TPLF leaders vowed to use the loot to rehabilitate and reconstruct Tigray, which they insisted was disproportionately affected by the struggle to “free Ethiopia.”

Intoxicated by its military victory, the TPLF then turned to building a business empire. EFFORT epitomizes that unholy marriage between business and politics in a way not seen before in Ethiopian history. According to a research by Sarah Vaughan and Mesfin Gebremichael, EFFORT, which is led by senior TPLF officials, currently owns 16 companies across various sectors of the economy.

This figure grossly understates the number of EPRDF affiliated companies. For example, the above list does not include the real money-spinners that EFFORT owns: Wegagen Bank, Africa Insurance, Mega Publishing, Walta Information Center and the Fana Broadcasting Corporate. The number of companies under EFFORT is estimated to be more than 66 business entities. Suffice to say, EFFORT controls the commanding heights of the Ethiopian economy.

While it is no secret that EFFORT is owned by and run exclusively to benefit ethnic Tigrean elites, it is a misnomer to still retain the phrase “rehabilitation of Tigray.” Perhaps it should instead be renamed as the Endowment Fund for Rendering Tigrean Supremacy (EFFORTS).

MIDROC Ethiopia, EPRDF’s joker card

In Ethiopia’s weak domestic private environment, EFFORT is an exception to the rule. Similarly, while Ethiopia suffers from lack of foreign direct investment, MIDROC Ethiopia enjoys unparalleled access to Ethiopia’s key economic sectors. Owned by Ethiopian-born Saudi business tycoon, Sheik Mohammed Al Amoudi, MIDROC has been used by the EPRDF as a joker card in a mutually advantageous ways. The Sheik was given a privilege no less than the status of a domestic private investor but the EPRDF can also count it as a foreign investor. For instance, the United Nations Conference on Trade and Development reported that about 60 per cent of the overall FDI approved in Ethiopia was related to MIDROC.

MIDROC stands for Mohammed International DevelopmentResearch and Organization Companies. Despite reference to development and research in its name, however, there is no real relationship between what the crony business says and what it actually does. Ironically, as with EFFORT, MIDROC Ethiopia also owns 16 companies. But this too is a gross underestimation given the vast sphere of influence and wealth MIDROC commands in that country.

Like EFFORT, Al-Amoudi’s future was also sealed long before the TPLF took power. He literally entered Addis Ababa with the EPRDF army, fixing his eyes firmly on Oromia’s natural resources. Shortly after the TPLF took the capital, Al-Amoudi allegedly donated a huge sum of money to the Oromo People’s Democratic Organization.

Why the rush?

The calculative Sheik sensed an eminent threat to his business interests from the Oromo Liberation Front (OLF), a groups that was also a partner in the transitional government at the time. In return for its “donation,” MIDROC acquired massive lands in Oromia – gold mines, extensive state farms and other agricultural lands. In a recent article entitled, “The man who stole the Nile,” journalist Frederick Kaufman aptly described Al Amoudi’s role in the ongoing land grab in Ethiopia as follows:

In this precarious world-historic moment, food has become the most valuable asset of them all — and a billionaire from Ethiopia named Mohammed Hussein Al Amoudi is getting his hands on as much of it as possible, flying it over the heads of his starving countrymen, and selling the treasure to Saudi Arabia. Last year, Al Amoudi, whom most Ethiopians call the Sheikh, exported a million tons of rice, about seventy pounds for every Saudi citizen. The scene of the great grain robbery was Gambella, a bog the size of Belgium in Ethiopia’s southwest whose rivers feed the Nile.

It is little wonder then that Al-Amoudi said, “I lost my right hand,” when Ethiopia’s strongman of two decades Meles Zenawi died in 2012. If EFFORT is a curse to the Ethiopian economy, MIRDOC is EPRDF’s poisoned drink given to the Ethiopian people.

Mutual Distrust

The marriage between politics and business has had damaging effects on the country’s economy. One of its most far-reaching consequences is the total breakdown of trust between the EPRDF and the Ethiopian people. In economic policy, trust between private investors and the government is paramount. The deficit of trust is one of the hallmarks of Ethiopia’s much-touted development.

After all youth unemployment hovers around 50 percent. Every year, hundreds of young Ethiopians risk their lives trying to reach Europe or the Middle East, often walking across the Sahara desert or paying smugglers to cross the Red Sea or Indian Ocean aboard crowded boats. The desperation is a result of the lack of confidence in the government’s ability to provide them with the kind of future they were promised.

Ironically, aside from their crony businesses, the EPRDF does not have any confidence in Ethiopian entrepreneurs either. It is this mutual distrust that culminated in the prevalence of an extremely hostile environment for domestic private investment.

This is not a speculative claim but a well-documented fact. The World Bank’s annual survey, which measures the ease with which private investors can do business, ranks Ethiopia near the bottom. In the 2014 survey, Ethiopia came in 166th out of 189 countries in terms of difficulties in starting new business or trading across borders. Moreover, year on year comparison shows that the investment climate in Ethiopia is actually getting worse, sliding down the ranking both in the ease of doing business and trading across borders.

Farms but no firms

The TPLF cronies do not engage in competitive business according to market rules but act as predators bent on killing existing and emerging businesses owned by non-Tigrean nationals. However, the ruling party, which largely maintains its grip on power using bilateral and multilateral aid, is required to report its economic progress to donors (the regime does not care about accountability to the people). In this regard, the lack of foreign direct investment (FDI) has been a thorn in the throat of the EPRDF. Donors have repeatedly questioned and pressured the EPRDF to attract more FDI. The inflow of FDI is often seen as a good indicator of the confidence in countries stability and sound governance. Despite widespread belief in the West, the EPRDF regime cannot deliver on these two fronts.

To cover up these blind spots, the regime has persuaded a handful of foreigners to invest in Ethiopia, but until recently few investors considered any serious manufacturing venture in the country. Besides, considered “cash cows” for the government, banks, the Ethiopian Airlines, telecommunication and energy sectors remain under exclusive monopoly of the state. They provide almost free service to the crony businesses. Any firm looking to invest in manufacturing and financial sectors have to overcome insurmountable bureaucratic red tape and other barriers.

One sector that stands as exception to this rule is agriculture. Since the 2008 financial crisis and the rise in the global price of food, the regime opened the door widely for foreigners who wanted to acquire large-scale farms. These farms do not hurt their crony businesses but they do harm poor subsistence farmers. Vast tracts of lands have been sold to foreigners at ridiculously cheap prices, often displacing locals and their way of life.

Contrary to the government rhetoric, the motivation for opening up the agricultural sector has nothing to do with economic growth but everything to do with politics – to silence critics, particularly in the donor community who persistently question EPRDF’s credibility in attracting FDI. In essence, hundreds of thousands of poor farmers were evicted to make way for flower growers and shore up the government’s image abroad. This tactic seems to be working so far. Earlier this year, Ethiopia received its first credit rating from Moody’s Investors Service. In the last few years, in part due to rising labor costs in China and East Asia, several manufacturers have relocated to Ethiopia.

Addis’ construction boom as a smokescreen

Crony businesses and flower growers may have created some heat but certainly no light in Ethiopian economy. EFFORT and MIDROC were in action for much of the 1990s and early 2000s but GDP growth was not satisfactory during that time. In fact, since other private businesses were in dismal conditions (and hence domestic market size is very limited), even the crony businesses encountered challenges in getting new business deals.

The setbacks in political front during the 2005 election shifted EPRDF’s strategies to economic front to urgently register some noticeable growth.  This partly explains the motives behind the ongoing construction rush in and around Addis Ababa. In several rounds of interviews on ESAT TV, former Minister d’etat of Communications Affairs, Ermias Legesse, provided interesting accounts of cronyism surrounding Addis’ explosive growth and its tragic consequences for Oromo farmers.

It is important to understand the types of construction that is taking place around or near Addis. First, private property developments by crony estate agents mushroomed overnight. A lion’s share of land expropriated from Oromo farmers were allocated to these regime affiliates through dishonest bids. Luxury houses are built on such sites and sold at prices no average Ethiopian could afford, except maybe those in the diaspora. The latter group is being targeted lately due to shortages of hard currencies.

Second, EPRDF politicians and high ranking military officers own multi-storey office buildings, particularly aimed at renting to NGOs and residential villas for foreign diplomats who can afford to pay a few thousand dollars per month. It is a known fact that the monthly salary cap for Ethiopian civil servants is around 6000 birr (about $300). As such, that these individuals could invest in such expensive properties underscores the extent of the daylight robbery that is taking place in Ethiopia.

Third, the government was engaged in massive public housing construction but under extremely chaotic circumstances. The condominium rush in Addis is akin to the Dergue regime’s villagization schemes in rural Ethiopia. Families are uprooted from their homes without any due consideration for their social and economic well-being.

Most households that once occupied the demolished homes in Addis Ababa’s shantytowns made a living through informal home businesses such as brewing local drinks and preparing and selling food at prices affordable to the poor. It was clear that the condominiums were not suitable for them to continue doing such businesses. The construction of the public houses was financed by soft loans from various donor agencies to be sold to target households at affordable prices. However, the government often priced them at the going market rates for condos.

As a result, the poor households simply rented out the properties to those who could afford, while struggling to find affordable houses for themselves. Solving the public housing crisis was never the government’s intention in the first place, as they were only interested in creating business opportunities for their crony construction companies.

Fourth, roads and railway networks are by far the most important large-scale public sector construction projects taking place in Addis. There is no doubt that Addis Ababa’s crowded roads, equally shared by humans, animals and cars, need revamping. But, what is happening in the name of building roads and railways simply defies belief. First, the sheer scale and magnitude as well as the obsession with construction makes the whole undertaking look suspicious. Every time I travelled to Addis, I witness the same roads being constructed and then dug up to be reconstructed over and over again.

The ulterior motive behind these projects is nothing more than expanding TPLF’s business empire and benefit crony allies. Having exhausted opportunities within the existing perimeter of Addis, the so-called master plan had to be crafted to enlarge the size of “the construction site” by a factor of 20 to ensure that the cronies will stay in business in the foreseeable future.  In effect, the large-scale construction projects are being used to siphon off public funds. And there seems to be no priority or accountability in the whole process from the project inception, planning to implementation.

Lies and damn lies

The construction boom in Addis serves as a two edged sward. On the one hand, the funds generated from selling Oromo lands to private property developers adds to the ever-expanding business empire of Tigrean political and military elites. On the other hand, the appearances of several high-rise buildings and complex road networks give the impression that Ethiopia is witnessing an economic boom. The target audience for the latter scenario is foreign journalists and the diplomatic community in Addis Ababa, some of whom are so gullible that they fall in love with ERDF’s economic “miracle” from the first aerial view even before landing at the Bole airport.

The fact remains however: no such economic miracle is actually happening in Ethiopia. A pile of concrete slabs cannot transform the economy in any meaningful way. After all, buildings and roads are only intermediaries for doing other businesses. For instance, it is not enough to build highways and rural roads – a proportionate effort is required to enhance production of goods and services to move them on the newly built roads in such a way that the roads will get utilized and investments made on them get recovered. Otherwise, the roads and buildings can deteriorate without giving any service, and hence more public money would soon be required to maintain them. This is exactly what is happening in Ethiopia.

Meanwhile, the EPRDF has been engaged in a frantic effort to generate lies and damn lies to fill the gap between the rhetoric and the reality of Ethiopia’s economy. The government-controlled media has been used for extensive propaganda campaign to create a “positive image” in the eyes of ordinary citizens. They literally compel viewers or listeners to see or feel things that do not exist on the ground. The Ethiopian television zooms onto any spot of land with a colony of green grass or lush crop fields to “prove” the kinds of wonders the government is engineering.

Barring rain failures, much of Ethiopia’s lush-green countryside has a decent climate for agriculture. But the EPRDF regime tries to convince the public that anything positive that occurs in the Ethiopia is because of its economic policies. But, as evidenced in ongoing multifaceted grievances around the country, the government is fooling no one else but itself (and perhaps a few gullible individuals in the diplomatic community).

Its lies also come in the form of dubious economic statistics, which are generated in such a way that EPRDF could report double-digit economic growth year after year. The story of the double digit economic growth rate in Ethiopia has been such that a lie told hundreds of times, no matter how shambolic the numbers are, is becoming part of the western vernacular. Donors often point to the abundance of high-rise buildings and impressive road networks in Addis Ababa in regime’s defense.

In a brief conversation, it is not possible to take such casual observers through details of the kind I have attempted to narrate in the preceding paragraphs. And, unfortunately for millions of Ethiopia’s poor, in the short run the government’s lies and crony capitalism may continue to ravage the country’s economy until it begins to combust from within.

(Previously posted on http://www.opride.com on July 15, 2014)

Sovereign bond may prove to be a nightmare for Ethiopia

cartoon_bond

Ethiopian has recently joined the sovereign bond market, where governments sell debt to investors with a guarantee that they would pay periodic interest rates and the initial investment value at maturity.

The bulk of sovereign bonds are bought by institutions and governments, individual investors constitute a relatively small proportion of total bond buyers. Sovereign bonds are often denominated in local currencies.

Ethiopia’s foray into the sovereign bond market has raised eyebrows in the world of financial market for at least three reasons. First, Ethiopia is the poorest country ever to venture into this market.  Second, the real value of Ethiopia’s currency has been deteriorating at alarming rates, devalued by close to 40 percent in the last three years alone. Third, the 108-page long prospectus that the Ethiopian government prepared and submitted to formally enter the market contained astonishing revelations. In a bizarre twist, the government made unfamiliar and strange declarations about risks associated with purchasing the bond it is about to issue.

Among other things, authorities warned about: famine, Ethio-Eritrean war, social unrest and upheaval in the aftermath of the May 2015 election. These are extra-ordinary admissions of risks to a scale not heard in this market before. But what is the motive of the Ethiopian government in exhibiting such an extraordinary behavior? What are the triggers for the move to enter the sovereign bond market? In this piece, I will attempt to seek answers to these questions.

Carrot and stick

The local English weekly Addis Fortune reported rumors in Addis Ababa that the unusual admission of the risks was due to naivety of junior staff. However, central government in Ethiopia is known for ordering lower level units to do things a certain way only to deny involvement to avoid blame at a later stage. For example, federal government officials often deny and attribute human rights abuses to local authorities. The latest screw up seems to be an extension of that logic to international diplomacy. The fact that this rumor was leaked through a pro-government newspaper provides further clue about some sinister motives beyond a simple act of incompetence by those who prepared the prospectus.

It is likely that the government used the document as a carrot and stick tactic aimed at Western governments.  An evidence of this comes from the revelations about Ethiopia’s “credit lines from China and Chinese entities accounted for 42 per cent of all external loan disbursements in 2013-14, and for 69 percent in 2012-13.” This fact underscores Ethio-Chinese partnerships have been considerably strengthened. Western countries, particularly the U.S., recognize Ethiopia’s support in the global fight against terrorism. But they also know that that support has often been offered to them so officiously with hidden motives, which at times jeopardized Western interests in the Horn of Africa.

The issuance of the sovereign bond and rare admission about the scale of Ethio-China relations appear like a warning to the U.S.: Buy the bond generously if you want to stop us from lurching toward China. The categories of hazards the government chose are even more telling. For instance, the possibility of another war with Eritrea is inserted to gain sympathy and also imply that terrorism is still rampant in Horn of Africa. The likelihood of social unrest after the next election is meant to warn the West that they should not seriously consider pressing the government on human rights and democratization.

Other motivations are rooted in domestic politics. The government knows that the risks are real and investors will find out sooner or later. In that case, by declaring the risks upfront, the regime tries to present itself as a brutally honest and transparent government. In doing so, they might be trying to pre-empt opposition claims about lack of transparency in areas of governance and economic management.

Liquidity crisis

The Ethiopian government has a strange habit of biting more than it could chew. For example, it plans to invest about $5.1 billion per year over the next decade on mega infrastructural projects: power, roads, and telecommunications. Another $6 billion is required to build a 2.4 thousands km railway network. The construction of the Grand Ethiopian Renaissance Dam (GERD) on the Nile River is expected to cost about $4.8 billion. The World Bank has warned that this level of investment (more than 40 percent of GDP and three times the $1.3 billion in infrastructure spending that the country managed during the mid-2000s) is well beyond the country’s modest means.

This created a self-inflicted wound in the form of a very messy liquidity crisis: an acute shortage or drying up of funds in the economy. This crisis is the main trigger for the foray to the sovereign bond market. The shortage of funds is specially manifested in difficulty to borrow funds from the banking system. The crisis has been around in the Ethiopian economy for a good part of the last decade. The government left no stone unturned in the sphere of the domestic economy to overcome the severe liquidity crisis.

But the regime squandered huge sums of free grants and concessionary or low interest loans from donors, annual net-inflows in the upwards of $2 billion, excluding other humanitarian aid. If wisely invested, the unprecedented and extremely generous foreign aid would have already pulled Ethiopians out of poverty. On the contrary, foreign aid created perverse government behavior — the abundance of foreign hard currency meant authorities did not see the need to economize. A good chunk of the funds was embezzled and transferred abroad. The rest has been wasted on white elephants that have no prospect of yielding returns at least in the short to medium term.

The debacle from the 2005 election and the 2009 Charities Law, which restricted operations of foreign NGOs, saw a noticeable reduction in foreign aid. The government had to seek non-concessionary loans, particularly from China, to finance its mega projects. Meanwhile, the ill-designed project locations in less productive sectors or regions means sharp declines in export earnings.

For much of the last decade, the government simply printed more and more birr and engaged in a spending spree. However, a limit was reached when inflation hit the roof, approaching 60 percent in 2008. Fearing political backlash through social unrest and also due to pressures from international financial institutions, the government backed down from its inflationary financing strategy.

Involuntary savings

Absent foreign funds, the government maintained a dogged determination and vowed to proceed with the mega projects by entirely relying on domestic savings. This began with sales of government savings bonds to domestic institutions, to raise about $892.2 million in five years. Obviously, this was not realistic. About 70 percent of Ethiopians still live in extreme poverty, and one cannot expect households to voluntarily save even a small proportion of the target amount of saving. Consequently, the government resorted to force savings, using unorthodox methods.

The involuntary savings was accompanied by an intensive propaganda campaign to rally the public around the mega infrastructural projects by creating wartime like atmosphere. It is not only “unpatriotic” to question the suitability or merit of the large projects, it borders with criminality to express any reservations specifically about the GERD. Every civil servant has been forced to buy a saving bond paying her one-month salary in 12 installments. They have also made a relentless but unsuccessful campaign to entice the Ethiopian diaspora. The perverse method applied to sell bonds to households was followed by an even more crude procedures meant to force bonds on the business community. Private Banks have been compelled to purchase bonds equivalent to 27 percent of their annual loans. However, this does not apply to government owned banks. Banking is effectively government monopoly, the three major state-owned banks hold 73 percent of the total bank assets in the country, 63 percent for the Commercial Bank of Ethiopia alone.

The extent of ignorance among Ethiopia’s policy makers is baffling. The involuntary saving is meant to boost public investment expenditure, which is part of aggregate demand that fuels economic growth. But the authorities grossly overlooked the very act of involuntary saving is bound to reduce the other components of expenditure — household consumption expenditure on goods and services as well as business investment expenditure.  Sure enough, the government has belatedly realized there was a limit to achieving their goals through involuntary savings, and with all options in the domestic economy already exhausted.

Sovereign bond

The sovereign bond saga is a yet another maneuver to raise funds the government so desperately needed to finance the ill-conceived mega projects. This time the movement is on a less comfortable and unfamiliar terrain beyond Ethiopia’s borders, in the international market arena where the regime cannot apply brute methods to enforce bond purchases. Perhaps for the first time in its rein, Ethiopia’s ruling party will have to play by the rules.

Accordingly, it set out with a calculated move to secure a “sound” credit rating from known global agencies. In a quick succession during the first half of May 2013, credit rating agencies offered the government exactly what it needed. Fitch Ratings and Moody’s assigned ‘B’ and ‘B1’ ratings to Ethiopia, respectively. These endorsements opened the door for a debut on international capital markets.

However, the government rhetoric notwithstanding, most economic analysts know that the fundamentals of the Ethiopian economy have not reached the level that warranty the kinds of credit ratings offered to Ethiopia. For instance, in May 2012, three months before Meles Zenawi died, the Economist observed:

JUST how sustainable is Ethiopia’s advance out of poverty? This is a vexed topic among bankers and others in Ethiopia who hold large wads of birr, the oft devalued currency. Despite hard work by the World Bank, oversight from the International Monetary Fund, and studies by economists from donor countries, it is not clear how factual Ethiopia’s economic data are. Life is intolerably expensive for Ethiopians in Addis Ababa, the capital, and its outlying towns. Some think Ethiopia’s inflation figures are fiddled with even more than those in Argentina. Even if the data are deemed usable, the double-digit growth rates predicted by the government of Prime Minister Meles Zenawi look fanciful.

Similarly, soon after Ethiopia received the favorable credit ratings, the International Monetary Fund “warned that the pace of accumulation of public sector debt to finance major investments in dams, factories and housing construction “deserves close attention.”’ Given these reservations about the credibility of Ethiopian authorities, it is perplexing as to why the ratings agencies endorsed Ethiopia to enter the global capital market.

This could have happened only if Ethiopian authorities have utilized their familiar strategy: buying the services of powerful and highly connected lobbying firms. This has become a familiar last resort for authoritarian regimes in Africa. Ethiopia reportedly allocates a sizeable budget to pay for prohibitively expensive lobbyist service fees.

Public sector debt has been growing at alarming rate. As Horn Affairs reported recently, “Ethiopia’s public sector debt grew threefold in the past five years. The total outstanding external debt surged from $5.6 Billion in 2009/10 to $14 Billion in 2013/14.”These are increasingly becoming commercial or non-concessionary loans such as those from China. Ethiopia’s premature entry into the sovereign bond market amounts to adding fuel to a flame.

IMF predicts Ethiopia’s “total debt to GDP increases from 24 percent to 48 percent of GDP in 5 years, posing risks to debt sustainability. External commercial borrowing entails risks even under the assumption of a highly efficient big-push public investment program.”  This means unlike in the past when funds have been flowing in through free grants or soft loans, debt servicing will soon become a huge burden on the Ethiopian economy, given the government’s wasteful investment and a shift from soft to commercial loans. However, it is anybody’s guess whether or not the regime will stay long enough to face the consequences of its decisions.

(Previously posted on http://www.opride.com on December 15, 2014)