Ethiopian Business Review

Government Officials Have A Socialist Mentality

Tassew Woldehanna (Prof) has over three decades of experience in academic, research and consultancy services in the areas of child welfare, poverty and food security in Ethiopia and elsewhere. The 56 year old researcher has been involved in the national Poverty Analysis Report; a controversial study criticized for neglecting the facts on the ground.

Tassew’s academic life started at the Ambo Institute of Agriculture, where he graduated with a diploma in agronomy in 1983. He received an MSc in Agricultural and Environmental Economics and Policy as well as a PhD in Economics from Wageningen University in the Netherlands.

His career has taken him to many places, including spending time as a researcher at the Ethiopian Development Research Institute and at the Centre for the Study of African Economies at Oxford University, and the Department of Agricultural Economics at Michigan State University, USA. 

He joined Addis Ababa University (AAU) in 2000 as an assistant professor of economics. He also served in various leadership positions at the university including as college dean; and vice president for research until he assumed the post of president in February 2018. 

The process that led to Tassew’s ascent to one of the top jobs in Ethiopian higher education was unique. 

The Ministry of Education, for the first time, invited applicants to fill the post of AAU’s president through a competitive recruitment process. Accordingly, 22 applicants, including Fikre Desalegn (Prof.), brother of former Prime Minister Hailemariam Desalgen and president of the Ethiopian Civil Service University; and Masresha Fetene (Prof), who Tassew replaced as research vice president in the University, competed to replace Admasu Tsegaye (Prof.), who was assigned as Ambassador of Ethiopia to Indonesia, Malaysia and Singapore. 

Tassew was finally selected by the Ministry from among three finalists, including Jeilu Oumer (PhD), AAU’s serving academic vice president; and Bekele Gutema (PhD), Professor of Philosophy and Dean of the College of Social Sciences. 

EBR’s Samson Berhane sat down with Tassew, on the sidelines of the seventh Tana Forum held in Bahir Dar last month, to get his take on the current economic and political situation in the country, and his work at AAU.

 

EBR: You have been working on the Poverty Analysis Report, which comes out every five years, with the Central Statistical Agency for the last decade. But the report has been criticized for disregarding the facts on the ground. The latest Interim report reveals that poverty has declined to 23.5Pct over the past five years, while the country is experiencing its second worst drought in five years and the cost of living keeps rising.Tassew: It would not be wrong to conclude that poverty has declined over the past five years. In fact, the government’s target was reducing poverty to 20-22Pct.  The government spends over ETB30 billion annually to fund food assistance programs as well as to modernize the agricultural sector. The pastoral community development projects, which include safety net programs, helped to improve living conditions in pastoral areas. The construction of major infrastructure development projects, such as dams, roads and buildings, have benefited low-income households as well as creating opportunities for skilled laborers.

Currently, annual public expenditure accounts for 18Pct of the gross domestic product (GDP). In particular, around three percent of that was spent on [poverty alleviating projects]. This, coupled with a surge in private investment helped to reduce poverty. So taking all of this into account, poverty should have declined by more than what we reported. Several factors undermined the government efforts to reduce poverty, including inflation, which was above 30Pct when we first started the study. This increased the number of people living in poverty, contrary to what the government had planned. 

At present, landlessness is becoming common in rural areas, while unemployment skyrockets in urban areas. Similarly, inflation is going up, especially after the recent devaluation. On top of this, many private businesses are severely affected by the foreign currency shortage. Is it possible to reduce poverty under such conditions?

The country has been in a very challenging situation for the last three years. The biggest hurdle was the political unrest. Unemployed people and university graduates were involved in violence and protests. Although it is difficult to know the exact figure, this does have an impact on poverty levels, as does the recent displacement of almost a million individuals.

However, with the advent of the new leadership, the country is more stable now. So we expect positive changes in the economy, and we are already seeing that. 

On the other hand, the foreign currency crunch is still a headache. The government is trying to provide a solution using devaluation, yet this has created inflationary pressure. However, the inflation has been below my expectations. I believe the devaluation will reverse the foreign currency shortage in the long term. Meanwhile, it will prompt short term inflation and reduce the chance of getting people out of poverty.

The government believes soaring inflation is caused by hoarding. It even formed a high level committee to intervene. Similar administrative measures were taken a few years ago. Do you think this works? 

To ensure a stable market in the long term, the government should enact good policies, instead of intervening and dictating how businesses should operate. Market intervention might be a short term solution to control hoarding. Still, it is difficult to use such mechanisms, as it is normal and right for businesses to hoard products when there is a surplus supply and sell them at a relatively higher price when shortages occur. For instance, in the crop market, farmers accumulate their outputs and sell them in the summer when there are shortages, which should be encouraged because it stabilizes the market during shortages. But hoarding practices as a result of devaluation are inappropriate. 

Globally, it is customary to hold a buffer stock to safeguard against unforeseen future shortages. This is not what is happening in Ethiopia now. The government’s recent measures prove that there is a lack of knowledge about how the free market works.  Government officials have a socialist mentality, and they usually undertake actions based on the principles of that ideology. It is only in Ethiopia where price-cutting is perceived as a strategy to stabilize the market. Additionally, the government does not implement preventive measures before economic problems occur. Rather, it tends to take action after the problems get worse. The government should have known that hoarding would happen. But their actions, including shutting down businesses, show that they have not understood how the free market works.

Some policy makers and government officials think devaluation can solve the export crisis, and the foreign currency crunch, even though Ethiopia is an import dependent country. Do you agree?

I am an ardent supporter of devaluation. Coupled with the rise in saving deposits interest rates, it can help the country to achieve a positive balance of payment. If the purchasing power of the local currency decreases and the government does not take proper action, such as devaluation, in the end, those who have invested in the export business will be in a crisis and the country will suffer from a decrease in production capacity.

Ethiopian exports have been stagnant over the past five years. If the government had devalued the local currency at that time, instead of ignoring it, [the country would have earned better revues from export]. The government decided to devalue the birr by 15Pct at the last minute, when things reached a breaking point. The accumulated nature of the problem left the government in a desperate situation, so it had no choice but to devalue. 

The lack of good governance has hurt exports as well. To become competitive in the foreign market, the government should provide solutions to challenges that businesses face. Bureaucratic hurdles are another headache. The few public institutions responsible for promoting the export sector show that the government hasn’t paid attention to the problem. Overall, concrete research should be conducted to identify the root causes of the export sector to provide [better] solution. 

But there are research institutes and think tanks that can conduct that kind of research. 

I have not witnessed concrete studies being conducted in these institutes. The right institute would be the National Bank of Ethiopia. I know the central bank, and Addis Ababa University, have done some research on the issue, but it has not had much influence. Most of the studies are based on the works of the International Monetary Fund and World Bank, instead of being done independently. It is hard to know whether such research projects are being carried out the right way. 

Don’t you think that Ethiopia needs huge policy reforms to narrow the huge current account deficit? 

When a policy changes, it takes time to see its positive impacts. Meanwhile, more reforms to tackle the foreign currency shortage are expected from the government. 

The other concerning matter is remittances. Ethiopia has a potential to generate a huge amount of income from remittance, but the country doesn’t have a policy designed for it, and that needs to emerge through time. 

One of the main problems when it comes to remittances is the expanding informal channels along with black market operators. The Prime Minister recently suggested that eliminating those who operate within the black market, such as those found around Ethiopia Hotel in Addis Ababa, would boost the remittance flow in the formal channel. Do you agree?

I personally don’t think we can abolish the black-market system so quickly. Even if it is possible to remove those operating in the black market from a given area, there is a high chance of them going somewhere else. The ones found around Ethiopia Hotel only possess the capacity to sell up to few hundred dollars. But currency conversions worth millions of dollar take place underground. 

Black market operators will continue to exist as long as there is a mismatch between the demand and supply. Some experts suggest that the foreign exchange market should operate on the basis of free market principles. What’s your take on this?

If we do leave everything to the market, the crisis we’ve see in Zimbabwe will also happen in our country. However, a shift to the free market policy is essential because when the market changes every day, the consumer, the producer and the market should adjust automatically. We have not reached that point yet, as we need a strong administration capacity. 

Another concern with the rise of the black market is the issue of money laundering and terrorism financing. Recently, the European Union Commission blacklisted Ethiopia as one of the countries where money laundering and terrorism is soaring. 

Obviously, there is an illicit financial flow in Ethiopia. It is linked to the existing situation of neighboring countries such as Somalia, where the economic and political situation is not stable. As a result, traders in such countries use Ethiopian banks to formalize their income. On the other hand, some Ethiopian citizens want to hide their money outside the country. 

In the long run, such acts should be discouraged by Ethiopia because it is associated with the stability of a neighboring country, which can undermine its role in the African Union. 

There have been similar problems elsewhere. For instance, in a discussion with the business community, the Prime Minister urged investors to bring back the money they put in foreign banks. The government should investigate the factors that contribute to illicit financial flow. 

The African Continental Free Trade Agreement to which Ethiopia is a signatory was signed on March 21, 2018 in Rwanda. While Ethiopia’s foreign currency situation and balance of payment have been worsening, how do you see the impact of such agreements?

Taking such realities into account, organizations such as the Africa Union should help countries solve their internal crises to make the recent continental free trade agreement workable. No doubt it will increase the welfare of African people, but it depends on the peace and stability of the signatories. Furthermore, the Union should persuade the leaders of Nigeria, South Africa and Egypt, which have refused to be the part of the agreement. 

But don’t you think the money laundering and terrorism financing issues should be dealt with before the agreement?

This is like the chicken-and-egg dilemma. I believe both can be addressed  simultaneously. 

There have been various dialogue platforms, such as Tana Forum, trying to offer solutions to these issues. Although various policies have been formulated from the discussions, we don’t see them implemented. 

The African Union, which has been tasked to handle such tasks, is not a powerful institution. Instead of serving its purpose, it became a platform where leaders get together without informing their people about their achievements and failures. Indeed, its inception, through the idea of Pan-Africanism, should be applauded, but engraved in the people of Africa. We all come to various meetings such Tana Forum each year to participate but there is no implementation in the end. 

You were appointed as the President of Addis Ababa University recently. How do you plan to solve the complex bureaucracy, deteriorating quality of education and poor student teacher relationship? 

The University is aware of these problems and we are working to solve the bureaucratic hurdles through digitalization of basic services, such as registration. The records of students who graduated over the past 50 years will be automated, so they will be able to access their data without even coming to the University. 

With regards to the quality of education, it is a common problem across all level of education in the country. 

I acknowledge that AAU should produce graduates that are confident enough to tackle problems with the know-how, experience and ability to work anywhere in the world. Efforts are underway to achieve this. Furthermore, we are currently supervising lecturers to make sure that they do not miss any classes. Compared to five or six years ago, the relationship between students and lecturers is now in good condition.

One of the reasons for the surge in unemployment is because students are perceived to lack practical knowledge. Was that taken into account while reforming the University?

Yes, we know that very well. That is why we are attempting to provide practical education. We are now having meetings with the private sector to allow our students to intern at their companies. 

In fact, as I am also one of those who are working on the road map for the education sector, I am a witness to the problem. The educational system in Ethiopia lacks practical studies. There are some skills that one needs in life, like decision-making, team work and tackling problems. Higher learning institutions in the country aren’t able to give these life lessons to students. We need support from the government because when there is an increase in the number of students, we will need more resources.

Similarly, most universities are not independent; they are still being given directions by the Ministry of Education. A university should be measured based on how many of its well-equipped graduates are able to get jobs. There should be a system that measures the activities of universities and their outcomes. I’m sure that our new Prime Minister will push towards such changes.

The number of universities has reached 43 currently from a few two decades ago. Yet, employment opportunities are not keeping pace with the number of graduates. Critics say that the government must strike a balance between the growth of higher learning institutions and employment opportunities.

I beg to differ on this. The government should even double the number of public universities to become a middle income country in the next decade. Not all the youth that need to go to universities have the chance to do so. This shows the importance of increasing the number of universities that provide quality education. Ethiopia is in need of graduates who are innovative, instead of those who just chase after jobs. Meanwhile, the government has to encourage graduates to engage in investments by getting rid of bureaucratic challenges and create linkages with the private sector. 

Now you have become president of the biggest university in the country, and the job is tough and time consuming, how are you going to manage your research projects?

In my stay at AAU for 18 years, I have been teaching and handling several research projects, while still serving in different positions inside and outside AAU. I have been participating in at least four or five research projects on an annual basis. But, I don’t think I can continue to be active in research projects because of my new position at the University. Being the president of such a huge institution requires time and dedication. Additionally, there are several problems that need my attention at AAU. Still, I will continue working on big research projects such as the poverty analysis report. 

Tell us a little about your personal life

I got married before I joined Haromaya University, and had a daughter soon after. Now I have two children. One of my children is currently working as a lecturer, and the other is pursuing her degree in Information Technology Engineering. 


 6th Year . May 16  - June 15 2018 . No.61


 

Samson Berhane

Editor-in-Chief

samson.b@ethiopianbusinessreview.net

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