After thirty years of war, and highly centralized economy, it was time for reconstruction. What have been the strategy in order to stabilize the country on a macro economic level?
The country has been under quarrel system for decades. After the long lasting civil war, with the coming to the power of the transitional government, the main trust of the reform strategy was first of all, to dribble the economy, to restructure the government institutions, and to encourage the private sector to play the leading roles. It was in this thinking, that we have been implementing the economic reform program for the last six or seven years. Now regarding the macro economic stability of the country, it is in a good shape. Meaning, we do not have highly inflation, instead our inflation has been lowered to 3%. Our exchange system is fairly stable, and particularly in the fiscal aspect, we managed to have surplus instead of budget deficit. In the short term, our economic stability is in a good shape. This was really the trust for the reform economic program over the last 6-7 years.
What has been the contents of your relations with IMF, in order to stabilize the birr?
Over the past years, we have closely worked with the IMF and the world bank. As you know, one of the areas we dealt with over these years, was to have our exchange system reflect the market situations. In 1993, we initially devaluate the local currency. It was highly overvalued before, and as the result our production could not be competitive in the world market. Farmers were also suffering. We then agreed to devaluate our currency initially, massive to 100% devaluation. After that regarding our exchange system, it is now determined through the auction system. Initially, every month we had a foreign exchange auction at the central banks. Now, we have increased the frequencies and we have a weekly foreign exchange auctions at the central bank. Anybody who wants to buy foreign exchange can be there, and anyone who call the high prices first will get it. It is through the foreign exchange auction system that our exchange rate is determined at present. This week it is 7.7 birr per dollar.
Q. The Ethiopian banking system needs to be modernized. Which are the main steps that have been taken by your ministry in order to modernize it?
Our banking system should be loaded, competitive, and help the economy. In the last years, we encouraged new banks to enter into the system for domestic investors. As a result we have now over six private banks operating in Ethiopia. We have restructured our business, our construction, our agriculture and our development banks. At present, we are thinking of strengthening our biggest bank, that is the Commercial Bank of Ethiopia. To do this, first of all we want to meet audits regarding the Commercial bank itself, financial and even management audit will be conducted, to see the situation of our biggest bank. It controls over 80% of the assets in the marketing system. Basically, we are encouraging new private banks, on the other hand we are restructuring, strenghtening, and making sure that government owned banks are competitive. It is the same with the insurance industry.
In your opinion, what are the strategic economic directions Ethiopia should follow on medium and long term shooting struggles, to become an agricultural power, a tourism heaven, or in developing the modernization of mines and energy sectors?
Within the short and probably the medium term, agriculture definitely continues to be the dominant sector of the economy for many reasons. First of all, over 85% of the Ethiopian population depend on agriculture sector. Second, we all know exchange is mainly through agricultural programs. Therefore, in the short term agriculture will continue, but we have quarreled difficulties to our long term development strategy, that is agricultural late development industrialization. The other line is fifteen or twenty years form now, we except development and we are making that deliberately. The role factor for agriculture in contribution to G.D.P in terms of unemployment, eventhough it should be declined overtime, it will take time. At present, we are poor, but we have cheap labour force, we have fertile land, but we lack capital. So in short term, we need fast economic progress, we have to exploit what we have around, such as land, and labour force. The latter is not easy to engage in agricultural activities, therefore in the medium term agriculture will continue to play the leading role but overtime it will definitely change. As a potential we have two reasons. As you know, tourists are interested in historical science, and Ethiopia is the oldest state in the world, so they will track the historical part of the country from eastern part to the southern in the future. On the other hand, tourists are also interested in wild life. For example in the southern part of Ethiopia we have very attractive wild life areas which attract many tourists. So, we can say tourism significantly supports our economy.
We often mention that the Ethiopian new Foreign economic policy is an economic diplomacy, could you elaborate and tell us what this policy means ?
Of course, during these 6-7 years we are under taking economic reform program, out of central concern. During these years we had very supportive development partners in bilateral countries, financial institutions, and non-governmental companies. At times we have some difference on opinions, particularly while negotiating with the I.M.F and the World Bank. However, knowing our differences we continued having agreements. So I think in general, we have very constructive and common relationship with our development partners.
Does the conflict between Ethiopia and Eritrea affected the governmental budget ?
As you know, conflicts consume resources of a country, because one has to give direct resources from productive to destructive things, but we were forced to this cause. The Eritrean leadership was not ready to accept and to resolve this conflict peacefully. The O.A.U made peaceful proposals, which Ethiopia accepted and Eritrea declined. A country's primary task, and constitutional obligations is to defend it's people from foreign aggressors. As a result our defense budget has increased, that is an outcome of indirect impact of the war. First of all, within this short time people were forced to evacuate, to depend on charity, and the government was obliged to feed this unfortunate people that were incapable of producing. So, I would say as a result of this conflict, there are numerous obstacles.
| Does the conflict holds effect on Foreign investment ?
Yes of course, but it does not have serious effects, but I think perception does. Investors are very conscience to invest, particularly in African countries. They consider Africa as a wild country, because the continent has suffered from civil war and from unstable government for decades. This is the general perception of Europeans and North Americans investors. What reinforce this perception is the media because in many of them, we mostly see the war and its effect. But even before this conflict the number of foreign investors in Ethiopia was not much. Of course, this conflict may increase in dimension, and that may in turn cause an unattractive image to foreign investors.
What are the opportunities Ethiopia offers to foreign investors ?
I think we have numerous attractive things. First of all, we have a very stable government which plays a great role in stabilizing the region. The second and most important thing for investment we have, is predictable economic indicators. An investor can easily foretell what will be Ethiopia's economic impression for the coming six years. I would say, this is an opportunity for investors who want to invest in the export sector. Others factors are the important location of the country for the international market, and we also have a very cheap and disciplined labour that can be easily trained. We have also a huge domestic market, and the population is about 60 million, which is the largest number next to Nigeria. As you can see from the documents, we have an economic growth of 6% , that shows our economy is a growing one. So, you can imagine from this the persisting power of the people. There are a number of important opportunities that Ethiopia can really offer.
Lately we can witness an increasing number of Foreign Companies starting to pay more attention to Ethiopia. Do you think this will continue, and what should be done to give the country a more visible and attractive image for Foreign business companies ?
I shall say up to now, we have not been effective in working with Foreign investors. We have number of opportunities, then I think what we should do and what we have already done, is to establish an institution called the Ethiopian investment Authority. This authority will really help to work on this public relations, as we are very weak traditionally on this domain. But now as we are in a modernized and in a full of competition world, we should improve this, so as to attract foreign investment. We should also continue to see what are the bureaucratic assent to investment, increase our capacities, stream line how our customs works, how our Airlines works etc.. Right now we are concentrating on the water steams.
At present time there are lots of incentives accepted by investors. Eventhough the Foreign business committee investors know these incentives, don't you think there is a need for more communication ?
Yes, it is right that at present we have certain incentives. we have hold tax subsidies for a number of years. An investor who comes and invest here, depending on the type of the investment, and depending on the location, he will enjoy tax subsidies. Even in some cases, he might be exempted from custom's duties, and will be provided land freely, and variable number of additional things.
As a more personal issue, what has been the most pleasant and the most uncomfortable things you discovered since becoming Finance Minster ?
Well, the most uncomfortable thing I discovered is the actual conflict between Ethiopia and Eritrea, because I personally never excepted that one day we will witness such unfortunate matter. All our strategies thinking were based on the assumption that in this part of Africa, the horn, is the part of region that has really sufficient wants. That was under this assumption, that we were adjusting our budget, concentrating on health and education roles. Now we are forced to allocate more money for this one, so this is really one settings, the other thing is that, five or six years ago, when we were formulating our food strategy we assumed that the country can feed itself for 10 years, but within two or three years given certain basic requirements, if we import five hundred thousand tones of chemical fertilizers, we can teach our peasants how to use these fertilizers in crop seeds. Now it become really clear that Ethiopia can feed itself at any time. It was two years ago that the food production was sufficient for the country, and we even manage to export after 30 years. We have seen such encouraging matter, that Ethiopia can again live, and that Ethiopians can afford three meals a day within a short time. Hence, all these matters gives me courage. Especially the sign that we are conquering poverty is a pleasant thing.
As a final issue, keeping in mind that our readers are top businessmen, what will be you final message to our readers?
Repeating what I said earlier to every investor, please come and invest in Ethiopia, we have numerous opportunities. Ethiopia is a country with 60 million population, it is a country where the O.A.U and E.C.A headquarters are found, and a country which is the member of COMESInvesting in Ethiopia, means having access to all these. It's a country which is close to the Middle East and the Gulf. This is a country where you can predict what will be your investment response , a country where we have the most disciplined and trainable labour force in the world. Therefore any investor is welcomed to come and see for himself. |
