Ethiopian Business Review

Fund leaves youths thirsty Featured

Is the youth fund a viable solution to tackle unemployment?

Youth unemployment has been a pressing issue for the government of Ethiopia for a long time, but at no other time has it become such an issue of national concern. The glut of graduates from rapidly spreading higher education institutions, coupled with the lack of jobs in both rural and urban areas has contributed to the rising political instability in all regions, leading to injury, property destruction and even death. To try and address the problem, the President of Ethiopia, Mulatu Teshome, (PhD) announced an ETB 10 billion revolving youth fund to help youths create their own opportunities. However, the administration and disbursement of the fund has not been as expected in Addis. EBR’s Samson Berhane looks at the reasons behind the underperformance.

Abel Asmelash, 23, finds himself desperate these days; he is unemployed and spends his days doing nothing. Although Abel who lives in Cherkos, in Kirkos District, is actively looking for a job, he remains idle, forcing him to be reliant on his family. “I have been looking for a job ever since I dropped out of school before taking the General School Leaving Certificate Examination in grade 10, six years ago,” he told EBR.

Abel’s experience sheds light on a common situation facing many youth in Ethiopia. In fact, youth unemployment is a socio-economic problem that has emerged as a major source of concern among policymakers because of its daunting consequences, which range from poverty and social issues to political unrest and instability.

Abel is part of an estimated 1.8 million unemployed people living in urban areas between the age of 20 and 34.  According to the latest Urban Employment/Unemployment Survey published by the Central Statistical Agency (CSA), there are 5.3 million youths in urban areas aged 20-34, out of which 3.5 million are employed.

The government has been introducing different initiatives to tackle youth unemployment, the latest being a ETB10 billion Youth Revolving Fund scheme, which is expected to serve as a permanent source for financing exclusively youth-centered projects. Approved by Parliament in February 2017, the scheme was believed to provide the youth with financial and technical support to help them alleviate their economic and social problems. 

Planning to take advantage of the revolving youth fund, Abel and his friends presented a proposal to the Woreda 04 office in Kirkos District six months ago. So far, however, Abel and his friends have not received a response. Just like many other young people, Abel has now turned to thinking of moving abroad in search of a better future.

“There were ten people in my group. Seven of them migrated to Libya to try and get to Europe,” a frustrated Abel told EBR. “I am looking for some money to do the same. I don’t trust the city administration anymore.” 

Addis Ababa City Administration, where Abel’s woreda is located, received ETB419 million- 4.2Pct of the total revolving fund-to support employment creation efforts by youths aged 18-34. 

Surprisingly, the Administration has only used ETB60 million so far, 14.3Pct of the allocated funds for the city. This is in spite of the fact that the city administration allotted an additional ETB300 million to employment creation activities for youths.

Out of the 1.16 million people living in Addis Ababa aged 20-34, only 60Pct are employed while the rest, including Abel, remain inactive, and are desperate to gain easy access to finance. 

The problem has been exacerbated in recent years due to the increasing number of graduates from public and private higher institutions. Although the surge in the number of public universities from only a handful in the 2000s to 43 now has dramatically boosted the available skilled manpower, the skills with which the graduates are leaving these institutions are debatable, even being described by the former Prime Minister Hailemariam Desalegn as ‘half-cooked graduates’. 

The Addis Ababa Youth and Sport Bureau attributes the delays in allocation of the fund to the lack of awareness and prolonged procedures. “At first, most of the youths who applied to access the fund thought it was a gift, instead of a revolving loan. Bearing this in mind, we have not been disbursing the funds as much as we had anticipated,” explains Mengistu Ashagre, head of Youth Participation Process at the Bureau.  

Erstu Yirdaw, minister of Youth and Sport, while presenting the eight-month report of the Ministry to Parliament, was blamed by Members of Parliament for the underperformance in implementation. “The youths are supposed to pass various procedures to get the funds. They will get fed up and drop their business plan,” said one the MPs. 

At the federal level the Ministry of Youth and Sport (MoYS) is designated to follow-up the implementation. The fund is disbursed to youth through 1,700 microfinance centers operating in different locations. Applicants are expected to form a union with at least five members aged between 18 and 34, and submit their proposal to local authorities. A steering committee comprised of technical experts and officials, reviews their proposals. Meanwhile, the organized youth are expected to deposit 10Pct of the credit they want to access. Afterwards, they may receive loans ranging from ETB200,000 to ETB300,000, with a five-year grace period. They also receive training for no less than a month to create awareness and help them to utilize the loan effectively. 

Except for Addis Ababa, and the states of Afar and Gambella, all the regional states, and Dire Dawa City Administration have completely used the funds they received from the federal government and have requested additional money. 

The states of Oromia, Tigray and Southern Nations, Nationalities and Peoples are the leading beneficiaries of the youth fund. They have received ETB1.6 billion, ETB 1.5 billion and ETB941 million, respectively, to date. “The fact that some regional states asked for an additional budget shows how much attention they gave to the fund,” said Enyiw Ali, deputy director of Communications Directorate at the MoYS. “Yet, there are also many gaps that we’ve seen across the regional states, including bureaucracy, irregularities, similarity of business plans and lack of skilled manpower in the reviewing process.” 

Some experts also had similar concerns. “The groups usually come up with similar ideas, which makes them less successful in an oversaturated market,” argues Atlaw Alemu, an economist and a lecturer at Addis Ababa University. “The scheme is similar to previous attempts, which proved to be fruitless.”

This includes the introduction of the Micro and Small Enterprises (MSEs) Developments Strategy, the first of its kind, in 1997 as a part of Agricultural Development Leads to Industrialization Strategy. Until 2009/10, a total of 176,543 MSEs utilizing ETB 814.1 million loan were established creating job opportunities for 666,192 people. At the end of the first phase of the Growth and Transformation Plan, a total of 271,519 new MSEs were established which, employed about 2.8 million people with a loan of ETB6.5 billion. 

Micro enterprises, in the Ethiopian context, are defined as entities employing at least one person with total assets of not more than ETB 100,000 while small enterprises must have between six and 30 workers with assets of between ETB100,000 and ETB1.5 million.

However, even though the formation of such enterprises was claimed to have created millions of jobs, their success is doubtful. In 2016, the Ministry of Urban Development and Housing discovered that only one percent of small and micro enterprises were able to develop to medium or large enterprises. 

Indeed, the efficacy of such programs had been questioned ever since their implementation. Many have argued the means of allocation used by government entities expose the fund to misappropriation and corruption, whereas others call it a misguided attempt to trim down the unemployment rate, not backed by innovative solutions and ideas. 

Amare Abawa, PhD Candidate, Mangalore University in his 2017 paper entitled ‘Micro, Small and Medium Enterprises Development Strategies in Ethiopia’, indicates that MSEs that failed to rise to the next level were not seen due to the focus on the establishment of new enterprises. The failure of enterprises to evolve into bigger ones employing more people was the biggest blunder of the strategy, according to Amare. 

As a result, experts warn that following a similar strategy and channeling the new fund through the old system is very risky. The government should have established a separate body to follow up the implementation of the fund.

Enyiw supports the idea of establishing such an institution in Ethiopia. “We have faced difficulties in measuring the effectiveness of the fund as it is implemented by various bodies. I think the establishment of an independent body will help to prevent such drawbacks.”

Yet, even amidst fears over implementation, the government still hopes the beneficiaries will have the capacity to repay their loans and help the fund to serve its purpose- being revolved every year.


6th Year . April 16  - May 15 2018 . No.60


 

 

Samson Berhane

Editor-in-Chief

samson.b@ethiopianbusinessreview.net

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