As a result of a failed coup d’état, the Ethiopian Revolution began in 1975. Since then, Ethiopia has followed strict economic practices enacted by the regime at the time, in which some mandates stated “the nationalization of all rural land, the abolishment of tenancy, the maximum family farm was to be 25 hectares, no one could employ farm labor, peasant cooperative of 800 hectares would be organized”, and “the peasants would be in charge of enforcement of land reform.” These authorizations essentially nationalized banks, insurance companies, both industrial and commercial enterprises, and residences or apartments that were leased. Further political unrest has affected the economy, which will be discussed later regarding trade.
Over the course of the past five years, Ethiopia has experienced double-digit growth of over 10% from its export of agricultural products. According to the 2010 Index of Economic Freedom, the economy relies heavily on agriculture since it contributes to over 40% of GDP (Gross Domestic Product), contributes to 70% of the nation’s exports and employs 80% of the population.
In spite of 10% growth, this advancement is over-shadowed by issues this increase has created. Both productivity and employment growth are slow since strict regulations allow little leeway for development; for example, restrictions on working hours are highly inflexible. Ethiopia’s agricultural market is also very fragile since an adverse change in favorable weather patterns may dramatically harm the economy. With the double digit growth, inflation is inadvertent and has actually skyrocketed. In 2008 alone, inflation averaged 44.4%, making the cost of buying food higher, ultimately producing strains for people to afford daily meals. Inflation had been the product of oil and food sales. Because the government controls and subsidizes state-owned facilities and enterprises, petroleum products, and fertilizers, the cost of food and oil is essentially regulated by the government.Since the government regulates virtually all aspects of the economy, Ethiopia’s financial sector is highly underdeveloped, and economic freedom is hindered. The largest bank, which leads the banking sector, is owned by the government. As a result, the government highly influences lending. Foreign involvement in services such as banking and insurance is strictly prohibited. Investments, after being approved and certified, may still be subject to further restrictions. The inexperienced and understaffed judicial system adds to this problem since well-experienced professionals are necessary in order to properly and efficiently handle accounts, if approved. Starting a business is also difficult. Although establishing a business only takes nine days, well below the international average of thirty five, and obtaining a license takes less than the world average of 218 days, the initial capital investment to start a company remains high. This problem, coupled with strict government regulations, makes starting a business a complicated challenge. Since creating a new business is this difficult, the economy has remained heavily agricultural.
Trade is also another issue which contributes to the unstable economy. Throughout the 1990’s, Ethiopia had engaged in war with neighboring Eritrea due to rising tension, stemming from past political conflicts regarding Eritrean independence and border disputes among the two nations. As a result from the war, Eritrea has closed its roads to Ethiopia. Ethiopia, a land-locked country, relied heavily on extensive Eritrean ports in order to export its products. Since then, Ethiopia has relied on Djibouti, whose coastline is only one fifth the size of Eritrea’s, for export.
Consequently, the cost to export goods is very expensive, but primarily due to the lack of infrastructure in Ethiopia. Only 15% of the 23,812 kilometers of all weather roads are asphalt. There is also rugged terrain and lack of sufficient vehicles to transport goods. In order to offset these costs, the government has enacted strict regulations on the price of imports. The price of imports has risen; however, this does not resolve the issue of lowering the cost of both expensive exports and imports. According to the 2010 Index of Economic Freedom, “Import taxes, import restrictions, restrictive foreign exchange controls, services market barriers, non-transparent government procurement, import licensing, cumbersome customs clearance, and inadequate infrastructure add to the cost of trade.” Despite the government’s attempt to prevent rises in the costs of imports and exports, the costs of any product are controlled by the government. This has caused the value of the Birr, Ethiopia’s currency, to fluctuate. Therefore, many have questioned the possibility of corruption within the nation, despite the fact that Ethiopia is a free market.Ethiopia claims to have a free market. In free market, there are two sectors, private and public. In Ethiopia, the public sector is controlled by the state. The so-called private sector however, is not authentically private, because these businesses, known as parastatals, are owned by political parties. Parastatals ignore the terms and regulations that private enterprises must strictly adhere to. While they have complete access to public finance, the capital that is generated by them does not go towards the federal treasury, which is why this “private sector” is not a public sector. With strict regulations, and the presence of parastatals in almost every area of the economy, such as agriculture, mining, and manufacturing, it is difficult for genuine private businesses to thrive. Therefore, the government has control over every part of its economy. It is also questionable where the income that these parastatals have generated goes to.
Fortunately, the future of Ethiopia’s economy is not as bleak as it appears. Improved health services, although humble in number, are a significant sign of the economy’s improvement. It is reported that health coverage is at 98.1 % up from 38% in 1991. 10,709 health posts were established within the first thirty months of a new health-extension program. The amount of hospitals has risen from seventy two in 1991 to one hundred forty three by 2008. With globalization, both the world community and religious communities are able to be aware of Ethiopia’s delicate economy. Therefore, international agencies have taken a proactive stance concerning the nation’s economic situation. Although parastatals cannot be completely eradicated, the World Bank and IMF (International Monetary Fund) have enacted policies designed to encourage authentic private business growth and hinder the spread of parastatals. Therefore, the economy can develop and place more emphasis on its healthcare. Foreign aid has also helped reduce Ethiopia’s plight. Organizations, such as the WFP (United Nations World Food Program) and CRS (Catholic Relief Services) have provided food and health services for Ethiopians who seek help. With knowledge of Ethiopia’s plight, foreign aid coupled with involvement of the Ethiopian government can ease the country’s economic situation first, in order to resolve its lack of healthcare.
-Katie
This is a very well written post detailing the economic issues in Ethiopia, which leads to the health care issues discussed in this blog, among other things. It was interesting to see how the government is actually responsible for much of the economic issues, such as inflation. While the government should be doing all they can to improve the economic problems of Ethiopia, they actually make it worse in many cases. The government controls all aspects of the economic sector of the country, yet they are not highly educated or specialized in their fields, so they often make economic matters worse. It seems that due the government's attempt to control and restrict as much as they can, evident in the fact that the private sector of the economy is not even truly private,the economy is hardly improving and fluctuating often. It is at least promising to see the advancements in the health sector of the economy. With the help of globalization and religion, through things such as foreign aid and economic help from international agencies, Ethiopia's economic problems can be eased and health care can continue on an upward trend.
ReplyDelete-Krista Gargiulo
I liked this post because not only did you talk about the economy of Ethiopia but you also tied in how it affects health care. In order to first solve the crisis of the brain drain, the lack of infrastructure, and health care, Ethiopia must first focus on its troubled economy. As Krista stated, it is interesting how much the government has to do with the economic issues. It seems as though it is corrupt and the country needs to seek a solution to this. Perhaps getting better educated and specialized people into the government and changing the way it controls the economic sector can be a step to finding a solution. It was interesting that you quoted specifics of advancements in health care because I had not previously known that there was such a great improvement in health care, for example the health coverage jump from 38% to 98%, which is a good start for the country. I also agree with Krista in that the country tackling its economic problems along with help from the global community and religions can be a huge step towards improvement in Ethiopia.
ReplyDelete-Susan Kashwala
This post fully explains Ethiopia's economic status and how the government is actually hindering it. With so many government restrictions and regulations, development is not possible. The government must take action and change these many restrictions and laws in order for modernity to occur in Ethiopia. With so many strict laws having to do with trade, banking, prices, and agriculture, it leaves the country's civilians limited to any kind of growth. With a corrupt government and inexperienced judicial system, Ethiopia's economy is troubled. But as this blog describes, many improvements have been made and the economy is slowly but surely rising. The health sector of the country is also on the rise thanks to MDCs and religious missionaries. This is a good starting point for Ethiopia to become modernized.
ReplyDeleteThe economic situation of Ethiopia during this present time is obviously inadequate regardless of the improvements made to try to increase the sufficiency of administration. Though steps are being made, as you had stated about health coverage increasing to 98.1%, more emphasis should be placed on health care, which can perhaps cause a chain reaction to the entire economy and provide a better standard of living for all people in the country. You stated in this post that the World Bank and IMF (International Monetary Fund) have enacted policies designed to encourage authentic private business growth and hinder the spread of parastatals. This sounds like a great idea in perhaps assisting the sufficiency of health care. The economy IS troubled as the comment above me stated. But your point in this post are definitely helpful and great ideas.
ReplyDelete-Pauline Tarife