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Ethiopia’s foray into Int’l capital market – lessons from Africa

For the most part, African countries long have had to rely on foreign aid or loans from international financial institutions to supply part of their foreign exchange needs. When compared with other emerging regions, Africa is the most dependent on multilateral and bilateral financing. At the end of 2011, those two sources jointly accounted for more than two thirds of public (and publicly guaranteed) external debts in Africa. In fact, half of African countries have no alternative way of accessing external financing

Official donors’ flows are now on a declining trend in real terms as the ongoing financial crisis have pressed donor governments to tighten their budgets. African countries would also like to reduce dependence on the usual aid providers and attain policy independence and finance projects that such donors have been unwilling to fund.

Now, for the first time many of them are able to borrow in international financial markets, selling mainly Sovereign bonds. A Sovereign bond is a debt security issued by a national government. Known as a Eurobond, is denominated in a foreign currency (usually the dollar, rather than, as its name would suggest, the Euro). Still only 14 out of 54 countries have been able to issue Eurobonds on international markets, in part because the process is rather complex. In addition, many countries remain unrated and are still subject to political instability.

What is new?

The developed world has been rocked by a succession of economic and financial crises while Africa has maintained solid growth over recent years, averaging about 5% per annum. The chief global economist at Renaissance Capital estimates the economy of Sub-Saharan Africa to grow 15-fold over the next 35 years; from $2 trillion to $29 trillion. Hence, they have considerable infrastructure necessities — such as electricity generation and distribution, roads, airports, ports, and railroads, which often require resources that exceed aid flows and domestic savings.

For many African governments, Eurobonds are a means of diversifying sources of investment finance and stirring away from conventional foreign aid. Not only do these bonds allow such governments to raise money for development projects when domestic resources are lacking, they also help reduce budgetary deficits in an atmosphere in which donors are not willing to boost their development assistance. In addition, bond issuances come with fewer strings attached than money from multilateral institutions. Governments also have more control over where they direct the money.

Changes in the institutional environment, reduced debt burdens, large borrowing needs, and Low borrowing costs are some of major factors propelling the burgeoning bond sales. Reduced debt burden also allows countries to borrow in international markets without straining their ability to repay. (The median government debt–to-GDP ratio in SSA is below 40%) In addition, many countries have strengthened their macroeconomic management and improved their ability to measure debt sustainability. Sovereign credit ratings, which are a good measure for the creditworthiness of a country, capture factors like a country’s sustainability of its external financial operations, the ratio of external debt to exports; and macroeconomic stability (mainly measured by inflation performance).

Analysts credit this surge in borrowing to factors such as rapid growth and better economic policies, low global interest rates, and the economic stress in many advanced economies, especially in Europe. In several cases, African countries have been able to sell bonds at lower interest rates than distressed European economies like  Greece and Portugal could. Although borrowing costs are historically low, yields of Eurobonds from Africa are high enough to draw foreign investors.

African Eurobonds

eurobondAttracted by the prevailing low interest rates, cash-strapped African countries looking to borrow money on international private markets are increasingly turning to Eurobonds. In 2006, Seychelles became the first country in SSA (except South Africa), to issue bonds in 30 years time. After a year Ghana followed by raising $750 million. Since then Gabon, Senegal, Côte d’Ivoire, D.R. Congo, Nigeria, Namibia, Zambia and recently Kenya have joined them.

Africa’s largest economy, Nigeria, entered the markets in 2011 with a 10-year Eurobond. In September 2012, Zambia made a splash on the international private market, launching a 10-year bond at $750 million. Rwanda followed suit in 2013 with a $400 million Eurobond. Kenya made a heavily oversubscribed inaugural debut in June to finance infrastructure projects raising $2 billion. According to Moody’s, a global credit rating agency, African countries raised about $8.1 billion in 2012. Financial Times reports investors placed orders for more than $8 billion showing the strong appetite for frontier market bonds.

What are the benefits?

The main benefits of international sovereign bonds are capital expenditure financing, benchmarking and raising visibility with a larger pool of international investors. In 2007, Ghana used bond proceeds to finance energy and transport projects. The proceeds of Senegal’s $500 million Eurobond issuance let the continued construction of a major highway and the upgrade of its energy infrastructure.

Sovereign bond issuance is usually the first step for a country’s wider access to private capital as it provides a benchmark for other national issuers and acts as a indication point in the appraisal of country risk for international investors. Benchmarking for the corporate bond markets is the most important development that African economies are experiencing. For example, following the inaugural $750 million Eurobond from Ghana in September 2007, Ghana Telecom placed a $200 million issue in the international market two months later.

Countries in SSA that issue inaugural bonds to raise at least $500 million will be qualified for inclusion in JP Morgan’s Emerging Market Bond Index (EMBIG). This elevates their visibility with a larger pool of investors and set a benchmark yield for local corporations and banks that desire to issue internationally.

Although some countries were able to issue 10-year paper or above, long-dated issue remains rare, thus most debt remains constrained at one year or below. The absence of a long yield issue in these countries is attributed interest rate and inflation volatility, public finance risk and lack of demand from investors.

Is it sustainable?

Whether this borrowing spree is sustainable in the medium-to-long term is open to question. The low interest rate environment is e expected to change in near future thus raising borrowing costs and reducing investor appetite. The current fast economic growth may not continue making it harder for African countries to service their loans. Furthermore, political instability in some countries could also make it harder for both borrowers and lenders. Political instability is also a factor that could put a twist in the whole process, reducing economic growth and increasing interest rates.

In a commentary entitled “First Borrow,” Amadou Sy, deputy division chief at the, points to recent sovereign defaults such as; the Seychelles default on a $230 million Eurobond in 2008, after a sharp fall in tourism and Côte d’Ivoire’s missed $29 million interest payment in 2011, after election disputes forced it to default on a bond issued in 2010. Government issuers also bear exchange-rate risk on the service of foreign currency debt. If repayment of the bullet maturity of the Eurobond coincides with a sharp depreciation of the exchange rate, the fiscal cost of repaying will be even higher.

Ethiopia – Reasons and Prospects

Ethiopia, Africa’s fifth biggest economy and one of the fastest growing frontier markets, is to become the latest entrant into international capital markets. Ethiopia attained its first sovereign credit rating in May, in which the popular rating firms Standard & Poor (S&P), Moody’s and Fitch rated her creditworthiness as B, B1(B+) and B, respectively. The ratings put Ethiopia in the same cluster with other strong African economies such as Kenya, Ghana and Zambia. Following this, she announced to make her maiden sovereign bond debut of a 10-year note by early January. Reports show that the government carried out preparations including the selection of three international banks (Barclays, Citi and BNP Paribas) that will help to select firms that will sell the bonds on behalf of the government and also a French advisory firm, Lazard Ltd.

The bond proceeds are expected to provide financing for her various infrastructure projects (such as roads, airports and railroads) and especially projects that IFI’s have been unwilling to finance like the Great Ethiopian Renaissance Dam (GERD). This in turn reduces the domestic borrowing pressure on the economy. The expected successful issuance will make Ethiopia eligible for inclusion in JP Morgan’s Emerging Market Bond Index (EMBIG) raising her FDI visibility and set a benchmark yield for local corporations such as EthioTelecom and EEPCo that may wish to issue internationally.

According to Moody’s analysis, only a few countries could raise a $500 million Eurobond internationally without distorting their economic and financial equilibrium, issuance representing below 5% of GDP, and a debt increase below 10%.. In Moody’s estimate, of a hypothetical $500 million Eurobond issuance would represent 1.1% of Ethiopia’s GDP and a debt increase of 4.7%, which will be 7.1% of general government revenue.

Strong economic growth and a low total debt to GDP ratio of 51.6% relative to western nations put Kenya in a strong position in its heavily oversubscribed maiden Eurobond issue in June in which she raised $2 billion, the largest debut for an African nation. This came in spite of a terror attack that killed 48 people. Analysts suggest expected 2014 GDP growth of about 5.8 % might have prompted investors not to ask for a much higher yield than the 6.875% interest Kenya offered for its 10-year paper.

With a total debt to GDP ratio of 35% and an expected 2014 GDP growth of 9% (Fitch Ratings), Ethiopia is expected to achieve similar success. Julians Amboko, a research analyst at Stratlink Africa believes Ethiopia is better positioned than many SSA countries because of its debt to GDP ratio of 35%, which is much lower than Kenya’s  51% and its budgetary structure that makes it a lot more debt reliant than Kenya and therefore, could easily surpass the one billion mark in its maiden debut.


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AU budget: He who pays the piper calls the tune

The African Union (AU) is a result of an age-old process that stimulated a sense of solidarity and unity among Africans and other people of African descent. It is the continuation of the Pan-African movement, which had its roots in Black Nationalist movements in Europe and America.

Prior to the birth of the OAU, the predecessor of the AU, there was an inter-state politics in Africa which was characterized by growing rivalry between the Casablanca and Monrovia group of states. The Casablanca group was principally led by Kwame Nkrumah, Sekou Toure, and Madibo Keita. This group had a more radical approach involving the creation of the federation of African states with joint institutions with a joint military command. The Monrovia group, on its part, was constituted by the Brazzaville group including most of the moderate Francophone states such as Ivory Coast, Senegal, Liberia, etc. plus members like Ethiopia, Nigeria and Somalia, which were somewhat neutral. The group stood for the protection of national sovereignty, territorial integrity and independence of its members.

The main contention can be summarized as to whether the organization should lead to a union of states or merely to an association of the independent units. Both groups had a lot in common and these were emphasized by the mediation of the relatively neutral states like Ethiopia leading to the establishment of the OAU in Addis Ababa on May 1963. The OAU as an association of the independent units prevailed over the creation of a union of states. The latter view had to wait for another favorable historical ground to be a reality. That time seems to arrive half a century later with a consensus to achieve the United States of Africa in a gradual approach.

Continental Integration

A gradualist approach to formation of the United States of Africa sees regional political and economic integration as a precursor to continental integration and rightly so. Many African countries have relatively small population, hence, small economies, which makes it hard for them to be competitive at the global level and develop industries and infrastructure that would enhance productivity and growth. Regional economic integration generates powerful economies of scale and allows free movement of goods, capital and people across borders – permits the formation of large regional markets.

The idea of continental economic integration was enshrined in the 1991 Abuja treaty establishing the African Economic Community (AEC), which was adopted under the auspices of the OAU in June 1991. The Treaty envisioned the establishment of the African Economic Community (AEC) as a goal achieved through the development of Regional Economic Communities (RECs), which would eventually fuse to create the AEC. With an emerging need to come up with an institution that would combine OAU’s political nature and the AEC’s economic character. African leaders met at an extraordinary summit of the OAU on September 1999, to discuss the formation of a ‘United States of Africa’. It was there that the African leaders adopted the Sirte Declaration, which called for the establishment of The AU.

The AU is supposed to be a forum to drive and accelerate the integration process until its conclusion, i.e. the establishment of the United States of Africa. Working towards this goal, the AU has so far recognized seven and incorporated them in its grand continental plan, Agenda 2063.

Funding the Pan-African dream

Here is the catch. The organization entrusted with this enormous mandate is an underfunded institution heavily dependent on “development partners” (a new-speak for foreign donors) to run its programmes. The 2013 budget was a mere $395 ml ($522 ml approved for 2015), which was roughly equal to ECOWAS budget, a 15 country West African regional body.

The operational budget of the AU is almost exclusively from the contribution of member states while “partners” almost exclusively cover the programme budget. The trend does not instill much confidence as the share of budgetary contribution by “partners” rose to 65% of the total budget in 2014. If the AU was just a local NGO working in Ethiopia, with this contribution ratio, it can only be registered as a “foreign” NGO according to Ethiopian law.

Of this meager amount, only about 67% of the planned programme budget gets to be spent, delayed release of funds and lack of implementation capacity accounting for the underperformance. The delay in the release of funds is the consequence of dependency.

The lack of implementation capacity however, is mainly the outcome of the meager operational budget allocated to a commission that is supposed to attract the best of African intellectuals and run an integration of 54 states. The average annual member states contribution is $ 119.85 ml even though estimates show it should at least be $200 ml.

There is more. Even the meager portion obtained from contribution of member states is riddled with holes. First, the amount is concentrated on a few nations since 66% of it comes from just six nations namely Tunisia, Algeria, Egypt, Libya, Nigeria and South Africa. The other problem is delayed payments, e.g. by mid 2012 only 11 of the 54 states paid their dues. Member states arrears are also a burden as seen by the fact that only 19 member states were totally paid up by the end of September 2013 as 8 nations (Libya, Sudan, Kenya, Cameroon, Senegal, Madagascar, Tanzania, Uganda) with the biggest arrears while only 4 (Gabon, Zambia, Nigeria, Ethiopia) had substantive advances for 2014.

Realizing that the status quo is unsustainable, the AU has since 2005 been discussing and reviewing proposals for ‘alternative sources of financing’.

This issue found momentum again at the 17th Summit in June 2011 which was held after Barrack Obama bombed a major contributing member, Libya, exposing the shaky financial ground of the AU. That point is probably the only unintended favor Africa got from Obama. The summit resulted in a decision to expedite the setting up of a High Level Panel on Alternative Sources of Financing the Union.

This Panel, also known as the Obasanjo Panel, named after the former President of Nigeria Olusegun Obasanjo, reviewed the previous “Wade Proposals”, which was prepared by former President of Senegal Abdoulayi Wade and finally settled on only 2 options. These options are a $2.00 hospitality levy per stay in a hotel and a $10.00 levy on flight tickets for flights originating from Africa. It is estimated that these proposals could raise the AU’s Budget to $ 2 billion a year.

After a year and half and two sessions, a decision is yet to be made.

It is now up to the next ordinary session of the AU in January 2015 to move it forward although you should not hold your breath.

Considering the excruciating pace of the process, it is only fair for an African to question the ability of the AU to implement this monumental mandate without attaining financial independence. The only possible scenario of that happening will only be if the organization adjusts its work to sync with the interests of its donors, which will run contrary to its mandate, the establishment of an independent United States of Africa.

Hence, the status quo only leads us to conclude that there is a need for a significant need funding of the AU solely sourced mainly from Africa and it should be achieved sooner. Short of that, the AU will lack the capacity and legitimacy it needs to realize the Pan African dream. That would be such a pity.


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Explainer: African Economic Community (AEC)

Today there is no country in Africa that is not a member of at least one regional economic group. In addition to agreements at a regional level, attempts have also been underway to create economic cooperation (and ultimately meaningful economic integration) among African countries at a continental level. This effort culminated in the signing of the African Economic Community Treaty (or the Abuja Treaty) in 1991. This treaty came into force in 1994.

The adoption of the 1991 Abuja treaty was one of the major antecedents to the African Union. Article 6 of the Treaty envisages the establishment of the African Economic Community (AEC), as an integral part of the OAU upon passing six consecutive stages over a transitional period not exceeding thirty-four years. The African Union (AU) was meant to be a forum that can accelerate sub regional economic integrations, which would in due course be amalgamated to create the African Economic Community. In pursuance of this expectation, the African Union has so far recognized 8 Regional Economic Communities. Besides recognizing them, the African Union intends to collaborate with them so as to create integrated Africa.

Article 4 of the Abuja Treaty enumerates four basic objectives of the AEC. These are:

1. To promote economic, social and cultural development and the integration of African economies in order to increase economic self-reliance and promote an endogenous and self-sustained development;

2. To establish, on a continental scale, a framework for the development, mobilization and utilization of the human and material resources of Africa in order to achieve a self-reliant development.

3. To promote cooperation in all fields of human Endeavour in order to raise the standard of living of African peoples, and maintain and enhance economic stability, foster close and peaceful relations among Member States and contribute to the progress, development and the economic integration of the continent, and

4. To coordinate and harmonize policies among existing and future economic communities in order to foster the gradual establishment of the community.

The Regional Economic Communities (RECs) that are the building blocks of the African Economic Community (AEC) are:

1. Inter -governmental Authority on Development (IGAD): Established in 1996. It has seven member countries in East Africa. These are Djibouti, Eritrea, Ethiopia, Kenya, Somalia, Sudan and Uganda. The IGAD was basically founded to address the recurring and sever droughts and other natural disasters that caused widespread famine, ecological degradation and economic hardship in the Eastern African Region. Its mandate eventually grew to include peace and security cooperation. It is on a path of closer cooperation with the other East African grouping The East African Community (EAC). Read more here.

au_and_rec_logos_02. The Common Market for Eastern and Southern Africa (COMESA): Established by Treaty in 1991. It comprises 19 member states: Burundi, Comoros, Democratic Republic of Congo, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Libya (since June 2005) Madagascar, Malawi, Mauritius, Rwanda, Seychelles, Sudan, Swaziland, Uganda, Zambia and Zimbabwe. The COMESA main objectives include taking advantage of a larger market size, to share the region’s common heritage and allow greater social and economic co-operation with the ultimate objective of creating on economic community. Read more here

3. The East African Community (EAC): is another sub-regional intergovernmental organization of the Republics of Kenya, Uganda, Tanzania, Burundi and Rwanda. Its main objective is to enhance the region’s competitiveness through ever-deeper integration inclusive of a customs union, a common market, a monetary union and ultimately a political federation of East African states. Read more here

4. The Economic Community of Central African States (ECCAS): Established in 1983. It has ten member states. These are Angola, Burundi, Cameroon, Central African Republic, Chad, Congo, Democratic Republic of Congo, Equatorial Guinea, Gabon and Sao Tome and Principe. Among the vital steps taken by ECCAS, its adoption of a protocol relating to the establishment of a network of parliamentarians of Central Africa and the early warning system for Central Africa are the notable ones. Read more here

5. The Community of Sahel-Saharan States (CEN-SAD): Established in 1998. It is a sub-regional grouping of  twenty three countries including Benin, Burkina Faso, Central African Republic, Chad, Cote D’Ivore, Djibouti, Egypt, Eritrea, The Gambia, Ghana, Guinea Bissau, Liberia, Libya, Morocco, Mali, Niger, Nigeria, Senegal, Sierra Leone, Somalia, Sudan, Tunisia and Togo. Its objectives are establishment of a comprehensive economic union and elimination of obstacles impeding the unity of its member states. Read more here

6. The Economic Commission of Western African States (ECOWAS): Established in 1975. It is a sub-regional grouping of fifteen countries including Benin, Burkina Faso, Cape Verde, Cote D’Ivore, Gambia, Ghana, Guinea, Guinea Bissau, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone and Togo. The EOWAS has four objectives: the removal of customs for intra-ECOWAS trade and taxes having equivalent effect, the establishment of common external tariff, the harmonization of economic and financial policies, and the creation of single monetary zone. Read more here

7. The Southern African Development Community (SADC): Established in 1992. It has fourteen member states: Angola, Botswana, Democratic Republic of Congo, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, South Africa, Swaziland, Tanzania, Zambia, and Zimbabwe. SADC has monetary, economic, political, security and cultural objectives which aim at cooperation and integration among its member states. Read more here

8. The Arab Maghreb Union (AMU): Established in 1989. It has five member states: Algeria, Libya, Mauritania, Morocco and Tunisia. It dares to guarantee cooperation with other regional institutions and between its member states. Read more here

The pace of integration of the RECs varies widely as some groups (like ECOWAS, SADC and EAC) are more integrated than ECCAS and IGAD. The AU aims to harmonize the level of integration within them and between them. The consolidation and merger of these groupings will result in the formation of Free Trade Areas (FTAs), Customs Unions, a Continental Free Trade Area (CFTA), and a single market. The final goal of establishing an economic and monetary union will include an African Central Bank (ACB), African Monetary Fund and a single African currency.

As per the Rules of Procedure of the African Union Assembly, the RECs are made part of the African Union’s activities. In fact, it is decided that a delegate is appointed to interface with the RECs strengthening the legal relationship between the African Union and the sub-regional organizations. The RECs are now becoming organs that can implement decisions adopted by the African Union Assembly.

Agenda 2063, the grand African renaissance draft plan of the AU, maps the future and the role of RECs in realizing the AEC. Some of the expected results of the integration process are:

* RECs, AUC and all AU Organs will have the capacity to prioritize, design, execute their mandates, including Agenda 2063, by 2017.

* All protocols leading to free movement of persons in each REC will be domesticated by 2016 and Intra- African Trade will be raised from 10.1% in 2012 to 60% by 2063.

* The union will harmonize, ratify and domesticate treaties / protocols related to regional integration of all modes of communications by 2018 and Complete all infrastructure for connectivity by road, air, marine, electronic by 2025 and by rail 2040.

* African Free Trade Area (by 2017), Africa Custom Union (by 2019), African Common Market (by 2025) and Africa Monetary Union will be established by 2025. All Key economic and political governance institutions will be in place by 2060.

[You may also read a review of the draft Agenda 2063 here.]


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Review: Agenda 2063 – The Africa We Want

Kwame Nkurumah, the most notable of the leaders of pan-African movement, heralded the arrival of “the Union government of Africa” at the 1st summit of the Organization for African Unity OAU, the predecessor of African Union AU by saying:

We have come to the end of a historic and momentous Conference. The decisions we have taken here have made African Unity a reality and we can see clearly a Union Government of Africa in the horizon.”

He was off by 50 years, the time it took for Africa to overcome the colonial hangover and lay a feasible plan to make that happen.

Maybe Nkurumah underestimated the state of ruin of the post-colonial African social structure and the neo-colonial challenges facing Africa. He may have also overestimated the ability of the existing few intellectual elite to drive the post independence agenda and the capacity of Africans to easily overcome inherited colonial ills. Africa took its time to sail through troubled waters to arrive at this point in which she set up a plan for her transformation.

Agenda 2063 is a roadmap that is supposed to guide Africans and their half a century old organization towards a realization of an old but enduring pan-African vision of unity. It was agreed upon by the African Union Golden Jubilee of May 2013 on which the AU rededicated itself to the Pan African vision of ―an integrated, prosperous and peaceful Africa, driven by its own citizens and representing a dynamic force in the global arena.”

The building of the African Economic Community is currently one of the major concerns of the African Union Commission (AUC). The authorities of the Pan-African organization have set many initiatives in motion, among which are: the rationalization and consolidation of the Regional Economic Communities (RECs); the acceleration of the establishment of the institutions provided for in the Constitutive Act of the African Union, including the African Central Bank with the mission of minting the single African currency, the African Monetary Fund and the African Investment Bank.

The Commission prepared a draft document of Agenda 2063 that makes all its initiatives part of a coherent roadmap that guides the AU Vision to build an integrated, prosperous and peaceful Africa, an Africa driven and managed by its own citizens and representing a dynamic force in the international arena as their overarching guide for the future of the continent.African railways network (projected)

What is in Agenda 2063?

The draft document summarizes its assessment of Africa’s 50 years journey by highlighting to major transitions out of the many responses African states developed to the exigencies of the times.

The first transition, according to the draft document, came a decade after several African countries gained independence (60s and 70s). In order to advance the agenda for economic emancipation and drawing lessons from the energy crisis of the 1970s, Africa took the strategic decision to pursue continental integration as a strategy for economic development. The various liberation and economic development strategies of the seventies and eighties including the Lagos Plan of Action have their genesis in that transition. This period was also marked by the Bretton Woods agenda on Structural Adjustments, which saw the contraction of African economies with far reaching consequences on critical social sectors.

The second transition occurred in the decade of the 1990s after the end of cold war and the adoption by the OAU of the Declaration of the Fundamental Changes in the World and Africa‘s response. The Declaration encapsulated Africa‘s determination to tackle the peace and security challenges of the continent, including those within nations, to foster democracy and good governance as well as economic development through deepening integration of the continent. After two dead decades of development (80‘s and 90‘s) Africa and the potential for increased marginalization, the continent turned the corner, with a better organized African Union.

Hence, the document states,”Africa used the celebration of half-century of independence to embark on a critical process of stock taking and mapping out a long-term vision. Agenda 2063, an endogenous, shared strategic framework for inclusive growth and sustainable development for Africa‘s transformation, is therefore a continuation of the Pan African drive, for self-determination, freedom, progress and collective prosperity”

The document is well structured into six chapters. The first chapter gives an introduction into the background that led to the development of this agenda while the second chapter states seven “aspirations” that express African aspirations for 2063. These are:

  • A Prosperous Africa based on Inclusive Growth and Sustainable Development
  • An Integrated Continent, Politically United based on the ideals of Pan-Africanism
  • An Africa of Democracy, Respect for Human Rights, Justice and the rule of Law.
  • A Peaceful and Secure Africa
  • An Africa with a strong Cultural Identity, Values and Ethics
  • An Africa of people-driven development relying on the potential of its women & youth; and
  • Africa as a Strong, Resilient and Influential Global Player and Partner

Chapter three gives an overview of Africa’s development dynamics and discusses the scenarios and trends, the challenges & opportunities. In chapter four the document details 18 goals derived from the seven aspirations, priority areas and strategies. Chapter five is a very brief assessment of the “drivers, enablers, risks and mitigation strategies” of Agenda 2063. The last chapter focuses on detailing implementation, monitoring, evaluation, financing, communication & capacities for implementation. The structure of the document has succeeded in making it a readable document in addition to its helpful annexes.

The goals of Agenda 2063

The seven African aspirations are expressed in 18 goals which I tried to summarize below. Agenda 2063 - Aspirations and goals

Goals of Aspiration # 1: The Africa of 2063 would be one of a high standard of living and quality of life and well-being reflected by increased per capita income to a level that is at least 10 times the value of the 2013 level (USD 18782) to USD 18,878 – 20,000. The vision of a prosperous Africa in which its citizens enjoy a life expectancy of above 75 years would be fully realized. With environmentally sustainable and climate resilient economies and communities, Africa in 2063 will be recognized globally as a continent respectful of its environment, ecologically conscious with well-established green economy and green energy. Africa would also be a fully water secure continent by 2030. While continental power pools (e.g. Inga Dam) would be fully functional before 2063 thus making the continent well lit and fully powered.

Goals of Aspiration #2: The emergence of the United States of Africa (federal or confederate) by 2063 as a sovereign, independent, united and strong Africa with an African citizenship, a passport, a Union anthem and flag. There would also be direct election of Members of Parliament to the Union Legislative body and the President of the Union will be elected by universal suffrage. As part of the political evolution to the United States of Africa, key economic institutions and frameworks as the African Common Market (on 2025), Africa Monetary Union (on 2030) Africa Customs Union (on 2019) and Africa Free Trade Areas (on 2017) would have been established and will could be part of governance structure of United States of Africa.

By 2063 the necessary infrastructure (quality and size) be in place to support Africa‘s accelerated growth, technological transformation, trade and development, including: high-speed railway networks, roads, shipping lines, sea and air transport, as well as well-developed ICT and digital economy. A World class infrastructure criss-crosses Africa and there would a continental High Speed Rail Freeway connecting all the major cities/capitals of the continent.

Goals of Aspiration # 3: By 2063, Africa would have undergone a deepening of the culture of good governance, democratic values, gender equality, and respect for human rights, justice and the rule of law. Democratic Values, Practices Universal Principles of Human Rights, Justice and the Rule of Law will be entrenched. Capable institutions and transformative leadership will be in place at all levels.

Goals of Aspiration # 4: By 2063, Africa will emerge as a Peaceful and Secure Continent, with harmony among communities at the lowest level, Inter–state and intra-state level. Africa will have the necessary capacity to secure its interests by ensuring a peaceful but a militarily strong continent. Africa will possess strong security with a common defense and security policy and strategy, so that the continent is capable of defending itself.

Goals of Aspiration # 5: African cultural identity, values and ethics as a critical factor for Africa‘s re-emergence on the global stage will be strengthened by 2063. African people are imbued with a sense of their fundamental cultural unity, which has fostered a sense of a common destiny and African identity and Pan-African consciousness. The Africa of 2063 would be one, where culture will flourish. National languages would be the basis for administration, and there would be a strong work ethic based on merit. Traditional African values of family, community and social cohesion would be firmly entrenched.

Goals of Aspiration # 6: By 2063, Africa will be a continent that has equal participation, opportunity and access for all segments of the continent‘s population to development outcomes and social and political discourse regardless of gender, political affiliation, religion, ethnic affiliation, locality, age or other factors. All forms of illegal migrations of youth would have ended, with travels to the outside world undertaken mainly for cultural and recreational purposes and not as a search for opportunities.

Goals of Aspiration # 7: Africa as major partner in global Affairs and peaceful co-existence the continent would have assumed its rightful place in assuring global peace and security through its Permanent Seats on the UN Security Council and with a deepened south-south cooperation based on a common African Foreign Policy. Established in 2020, the Pan African Leadership Institute (PALI) would by 2025 be graduating thousands of Africa‘s future leaders. These young men and women would be adequately molded and inculcated with an esprit de corps and the ideals of Pan-Africanism, and they in turn would run the capable developmental state in the Pan African spirit.

Is It Realistic?

The document is not all dreamy and has made a good job of addressing the existing and new threats the continent faces in its 50 years journey to realize this vision. The draft detailed a laundry list of threats such as conflict, instability, corruption, social and economic inequalities, organized crime and illicit financial flows, mismanagement of diversities, the ascendancy of religious fundamentalism, failure to harness the demographic dividend, escalation of Africa’s disease burden, climate risks and natural disasters and external shocks. The document gives brief recommendations to counter these threats however, it is crucial they get a deeper examination before passing into the final version. It is true a positive vision helps in launching an inspiring and motivating movement. A realistic vision that takes accounts all the risks and solutions will not hinder that but make the movement even stronger.

The biggest weakness of the document lies in what ought to be one of the pillars of the entire vision, the financing. The document is pretty thin on the question of how to finance a project of this magnitude with a long list of plans and numerous continental challenges. Africa infrastructural development fund, agenda 2063 implementation tax, home linked solidarity fund (Diaspora), adaptation of public–private financing models and funds from African capital markets / financial institutions are some of the financing mechanisms mentioned. It also rightly asserts Africa must diversify her sources of funding and donor funding should be tied to Africa’s interest instead of donor interest.

The document however doesn’t go beyond brief list of possible sources of funding and shuns both the challenges expected in raising them and how much (in numbers or as a percentage) is expected from each sources. The document recognizes this in fine print and hints on another document to wait for. I suspect the authors of this document expect the excitement this vision creates will help in exerting pressure on African nations and leaders into an agreement in what would be torturous financing negotiations. This is probably the only acceptable (and rather smart) reason for the lack of depth on the funding part of the document.

Agenda 2063 is truly a blueprint for the Africa we want and this draft shall be thoroughly discussed among Africans to highlight its strength and weaknesses so that we end up with a beautiful and ambitious but realistic road map to our common destiny.
You can download the full document of the draft Agenda 2063 here.

Articles Economy & Business Ethiopia featured

Ethiopia: Devaluation and dismal scientists

Ethiopia is blessed with brilliant economists however thanks to their aversion of the public space and abdication of their intellectual duty to educate the public, the public is forced to be confused by dismal scientists of “the dismal science”

I realized this when i came across a questionable article titled “The Devaluation of the Birr – a Layman’s Guide” by an Ethiopian economist. The article, though painful for anyone who has respect for the discipline, was not surprising.

The “guide” was provided from the same person that brought us the 2008 analysis “Is Ethiopia Really Enjoying Economic Development?” that, according to the author, Dr. Seid Hassan, was “designed to dispel and demystify the myth” of Ethiopian economic growth. The analysis then attributed the economic growth of Ethiopia to “bounce-back effects”, which is when a recession is followed by an above average growth, from the 2004 

Well, six years of growth passed since then and the bounce back effect, if there was any by 2008, is long gone with the credibility of the economist who relied on it. Ethiopian Currency - 100 Birr

It threw all the mud he could muster, from “unreliability” of WB/IMF data to a theoretical debate on GDP as a measurement in a desperate attempt to “dispel the myth”. It must be only in Ethiopia that you find an “economist” that finds the fact that “Ethiopian economy was on a higher growth trajectory and at the same time experiencing food shortage” puzzling. Higher growth trajectory is a state of economy that, if maintained for decades, can lead a nation out of food shortages. One does not have to learn economics to figure that out, apparently a PHD holder gets puzzled by it. It is always advisable to take with a grain of salt an economic analysis from economists that make their analysis subservient based on political convenience.


The buzz word of the month is now devaluation after the World Bank recommended the Ethiopian government to devalue the Birr in order to boost exports by 5.2 percentage points and economic growth by 2.2 percentage points. The government said it is considering it. That was followed by every political pundit turning into an economist overnight and a heated though unusual debate on the social media. Even though a debate on substantive issues is commendable, the lack of authoritative intellectuals setting the tone of the debate is unfortunate.

One of the reasons for our foreign exchange (forex) shortage is the loss of production output due to power shortages and we can only solve this by developing our power generation and distribution infrastructure. That requires a huge supply of foreign currency of which we are getting short of in the first place. The solution is the problem, a poverty trap.

The sustainable measure to mitigate the forex shortage is to increase the quantity and/or the quality of export goods and diversify our export items to enhance our market competitiveness so as to boost our foreign currency earnings. But this is a long term solution that requires the implementation of various policy measures to enhance labor productivity and production efficiency. Even though we could do it in the short term, as long as the exchange rate remains overvalued, exporters will not be competitive in international markets and investors are unlikely to invest in domestic productive capacity.

In the mean time we are left with two monetary tools at our disposal to reduce our forex shortage, austerity and devaluation.

Austerity, which is the reduction of government spending, entails (one among others) the government reducing its spending on the many railway, road and hydropower projects that consume the bulk of its forex reserves. This infrastructure projects are our only hope to build an industrial economy and for a fast growth that can ensure our escape from poverty. These projects are also what attract foreign investors (FDI) to come even before we build them since they include our plans for the future in their considerations. Reducing the projects will only delay our escape from poverty especially in a dynamic world where geopolitical situations change and economic opportunities easily go away.

The other tool and a common response to sustained foreign exchange shortage is to devalue the currency. Devaluation is a decrease in the value of a country’s currency relative to that of foreign countries. This lowers demand for imports as import prices rise in domestic currency terms, while at the same time foreign exchange earnings from exports rise as demand for more competitively (relatively lower) priced exports rises. (Click here – for a detailed explainer)

The tool is however, comes with its own risks like a potentially higher cost public investment, a relative increase of government debt and inflation

The potential to imported inflation is higher, especially in import-intensive countries such as Ethiopia. The impact of the inflation will be negatively felt by the solely consumer segment of the population. However inflation will also have a positive or (at least offsetting) impact on the more larger segment of the population that is engaged in producing export items or employed export intensive industries that will raise wages and hires to meet the increase in demand. The urban poor that is not employed in the export sectors like horticulture and industrial production will be hurt by rising prices while rural households (and farm households in particular) likely benefit from improved export opportunities.

Implementation of subsidy and other pro-poor policy measures can however reduce the negative impact of rising prices on the segment of the population that will be affected by it. The central bank is also expected to determine how large the devaluation will be taking the negative impacts and its capacity to reduce them into consideration.

Devaluation is a must. The question is how, when and by how much to do it. The current foreign exchange shortage is not a short-term problem that the country can ride out by borrowing on international markets or implementing foreign exchange rationing measures. While this looks our only strategy in the short run to reduce our forex shortage it is not sustainable in the long run. Faster implementation of policies to diversify export items, to boost labor productivity and production efficiency is long term measures to be started now.

I am sure we can agree the WB economists deliberated on it before recommending devaluation, keeping in mind the ideological bias of the institution. We can similarly understand when the government economists, those folks that brought us a decade of fast growth, say they are deliberating it. It is only logical for us to agree on the notion that an economist have to refer data and deliberate on an issue before coming out for or against it and to do otherwise even before reading the WB document will only be intellectual dishonesty and an act of relegating economics for political expediency.


Africa - General Agriculture Ethiopia featured News

The 4th African Green Revolution Forum launched in Addis

Africa’s’ political capital, Addis Ababa, is hosting the African Green Revolution Forum, AGRF 2014, the 4th to take place in Africa after Accra in 2010, Arusha in 2012 and Maputo in 2013. The conference aims to address the question “How can we sustainably eliminate famine and chronic hunger from the face of the continent?” Nearly 1,000 participants are expected to attend the AGRF, including African Heads of State, Ministers, farmers, business leaders, representatives of youth and women’s organizations, and scientists. The attendees will engage in conversations in 60 pre-events, plenaries and breakaway sessions from September 1-4, 2014. African Green Revolution Forum

The AGRF is the most significant Africa-wide gathering of agriculture experts, investors and farmers since the African Union issued its Malabo Declaration in June pushing for accelerated agricultural growth. In the Declaration, African Heads of State called for the doubling of food productivity in Africa, halving of poverty and significant progress toward the elimination of child under-nutrition by 2025. 2014 also marks the African Year of Agriculture and Food Security. The summit is expected to provide an opportunity to take stock of progress over the last decade.

The theme of this year’s AGRF is “Beyond the Tipping Point: A New Vision and Strategies for Inclusive and Sustainable Transformation.” The meeting will address critical issues for Africa’s food security: increasing food productivity as climate change presents more challenging growing conditions; promoting agricultural investment that generates benefits at all economic levels; increasing financing for agricultural development; and support for modernizing commodity markets and removing barriers to intraregional trade.

The AGRF is convened by “the Partners Group” which is made up of eleven partners such as the Southern African Confederation of Agricultural Unions (SACAU), African Union (AU), African Development Bank (AfDB), OCP Group, Alliance for the Green Revolution in Africa (AGRA), Rockefeller Foundation, Syngenta International, Yara International, AGCO International, International Fund for Agricultural Development (IFAD) and the Food and Agriculture Organization (FAO) of the United Nations.

“I am proud that many African nations are becoming economic powerhouses, but without a viable agricultural sector and a strong rural economy, there cannot be a viable future for Africa,” said Kanayo Nwanze, president of IFAD. AGRA will be releasing its second annual Africa Agricultural Status Report at the AGRF. The report focuses on the issue of African agriculture and climate change, and how to accelerate the adoption of climate smart agriculture by Africa’s smallholder farmers.

“These goals represent a renewed political commitment, at the highest level, for agriculture-led growth across our region,” said African Union Chairperson Nkosazana Dlamini Zuma, ahead of the AGRF. “We need to go further, faster. AGRF gives us the opportunity to hit the ground running and set in motion the plans and measurable steps needed for an inclusive, sustainable transformation of African agriculture by all actors.”

H.E. Kofi Annan, Chairman of Kofi Annan Foundation, HE John Kufuor, former President of Ghana, Donald Kaberuka of the African Development Bank, Eleni Gabre-Madhin, CEO of Eleni Exchanges and Sean De Cleene, Senior Vice President of Yara are few among the attending international executives. The forum aims to create a “virtual dialogue” by incorporating a volunteer twitter army using the #AGRF2014 hashtag and live streaming each plenary on its website


You can get real time updates of the forum by HornAffairs staff @FetsumBerhane

Ethiopia featured Opposition politics

Transcending unity delusion: A generational shift to a more perfect union

It was almost a month later that I found out about an article written by a pseudonym “Teshome Debalke” in a reply to my July piece titled “Why do Ethiopia’s terrorists hold British passports?” This supposed response fails to address my arguments and instead bores the reader in petty ad hominem attack. He pitied me by saying – “It is amazing what 23 years of growing up in the bubble of the Woyane ethnic Apartheid can do to young mind” – well, I can’t argue with him on that since perhaps he is talking from experience. After all he spent much more than 23 years in the bubble of “Ethiopia Tikdem”.

I would have ignored it if it was not for a single sentence about my “kilil” (region). That line led me to write this piece about the shallow “unity” sermons of our right wing politicians. It was a slip of a tongue that revealed the true colors of the writer and the political camp he belongs to. ethiopian federalsim

A deceitful shrill

Teshome wonders why I didn’t disclose “which region I belong to” in my article. This may puzzle a newbie for Ethiopian far-right politics since the issue of “region” is irrelevant to the topic of my article. A true democrat is expected to weigh an opinion objectively, regardless of the authors’ identity. The expectation of objectivity will be even more for someone who denies the notion of our ethnic diversity and claims to believe we all are one people.

But this is nothing new for the rest of us who know the right wing sermon of “one Ethiopia” is as fake as a 20$ iphone. The peddlers of this fake “unity”, which are a collection of individuals from almost all Ethiopian nations, are more obsessed with people’s ethnic origin unlike most of us that settled the issue two decades ago by agreeing to build “one economic community” in our march towards a more perfect union.

A politics of self-contradiction

Anyone with good reasoning can see through the self-contradictory arguments of our right wing politicians. To review some of those may help in uncovering their doublespeak which usually arises from a deliberate attempt to deceive and sometimes from an affliction of doublethink. 

Despite their deafening “we are all one people” shrill, they persistently provide us context deficient data to “prove” dominance of one ethnic group. They come up with conspiracy theories painting this group as a national security threat. Campaigns of character assassinations on government officials and high profile Ethiopians almost exclusively focus on those that are members of this ethnic group, however few they maybe. They are not interested in hiding their selective attack so much so that most of them can’t even name a quarter of the 15+ ministers who are not a Tigrean.

They lament about a piece of land they say was incorporated into Tigrai region while simultaneously saying we are one people and the federal structure is irrelevant. It’s only fair to ask why it bothers them if that area is part of Tigrai. Why they keep silent about other areas that were “incorporated” into other regions is another possible question.

They tell us we should “acquire” port of Assab, Eritrea’s sole economic asset, while stating their “love” to Eritreans and preach us of a future unity with them. If we are one people and we are bound to be together, then why not wait instead of spoiling our coming reunion by taking away their economic resource? Shouldn’t our “love” for Eritrean people lead us into respecting their sovereignty and work towards a friendly relation that fosters shared development?

They cry favoritism off a handful of factories built in Tigrai when there is much more elsewhere. And they still audaciously claim to consider all regions as their own. The current policy of equitable regional distribution on federal projects and the context of those handful factories render their complaint nothing more than a screech. Then why do they make this absurd claims is one possible question. It raises even more questions if we, for the sake of argument, consider their claim of favoritism as valid. Why would, where in Ethiopia, the government builds a factory bother them if it is not due to their regional mindset? If they were set on doing away the federal structure, where a factory is built isn’t supposed to trouble them as long as it makes economic sense. Let’s see it from another angle. Nationalist groups elsewhere usually support a policy of utilizing limited national capital by making public investment decision on the sole basis of economic sense; which may entail concentration of certain sectors in same area. That’s why unitary states find it is easier to adopt an unbalanced growth model. Apparently our unitarists are just closet ethno-nationalists with hegemonic ambitions.

They preach we shall take only merit not ethnicity into consideration when we assign people into administrative positions. However, tallying positions held by Tigreans is their favorite activity.

They brazenly reject the existence of the entire nation of Amhara and make a U-turn to claim a “disappearance” of 2.3 million (yes million) people from the same nation they argued to not exist.

They tell us they respect all ethnic groups and their languages while they show visible distaste for someone who chooses to use his mother tongue in his daily life.

They plead us to let go of historical grievances while reminding us of it by celebrating the perpetrators.

They display a patriot-than-thou attitude while standing with enemies of Ethiopia in her quest for a fair share of the Nile.

They cite data from international institutions to show the worse economic state of Ethiopia and then reject those same institutions when the data applauds the economy.

We can go on and on but I think this suffices to show my point, that the logical inconsistency of the right-wing politicians arises not from the lack of logical reasoning but the necessity to hide their ethno-centric hegemonic agenda.

With an adherence to an Orwellian notion of controlling the past, their leaders and influencers labor day and night writing volumes after volumes in an attempt to take apart the historical legacy of Tigrai. The historical animosity of the unitarists towards Tigreans due to their eminent share in the history of Ethiopia coupled with the blame they award them for the significant role they played in ending their “golden century” makes them primary targets.

The hostility however is by no means exclusive for Tigreans; it is extended for any self-respecting and culturally conscious Ethiopian. The empowerment of nations and the rise of a new generation that believes in our multicultural union is what keeps them up at night.

They warned us (and still do) of an impending disintegration of Ethiopia as a result of the multicultural federalism. However, despite their doomsday prediction, we are stronger than ever. We are a regional stabilizer instead of a Yugoslavia.

Turkish playwright Mehmet Murat gives an apt advice for these people. “If you have missed the sunset, try to catch the moonrise”. It is never late to embrace the new Ethiopia and work for a more perfect union.

The last 23 years maybe, as Teshome put it, a “journey in the darkness” for them. For most of us though it was a walk to democracy, a march to development and a leap to a real unity. The New Ethiopia is one that a “little boy” like me can get post-grad education before he reaches thirty. Even more, the New Ethiopia is one that someone from ethnic and religious minority can hold the highest office of the nation, and that, Mr. Teshome, is what Hailemariam Desalegn proved.


Articles Economy & Business Ethiopia featured

Explainer | Currency Devaluation

Devaluation means decreasing the value of the country’s currency in terms of other currencies. Devaluation largely applied to exchange rate reduction of national currencies which are pegged to USD, other currencies, The Special Drawing Rights (SDR) of IMF and other composite currencies.(Teklebrhane, 1992:27)

There are many reasons as to why a country seeks to adopt the policy of exchange rate devaluation; the main reason is the need to overcome economic difficulties caused by over valuation of exchange rate.

According to World Bank (1992:22): ¨…an over valuation of exchange rate imposes an implicit tax on export and hence discourages the production of exportable goods. It also sets an implicit subsidy on imports and hence encourages imports worsening the current account.¨

The other argument of devaluation is that it normally creates investment opportunities in the devaluating country by improving the situation for foreign investors inviting an inflow of capital (World Bank, 1992). Especially in the countries whose demand for export is relatively income elastic, this means that a percentage increase in income of the country’s trading partners increases the export demand of the devaluating by a larger percentage. As a result of this the nation’s income from export rises following devaluation. This calls forth investors to the export sector of the country. Devaluation is sometimes adopted to correct the inflationary situation caused by overvaluation.

That means devaluation is expected to increase the price of exportable relative to that of non-tradable there by shifting aggregate supply to the tradable and aggregate demand to non-tradable. And hence export earnings would increase resulting in the improvement of current account and hence balance of payments. In addition to the shift in production from home goods (non-tradable) to tradable, the shift also occurs from import to import substitution.

Devaluation may be able to reverse the imbalance of trade balance by lowering its price so that exports are encouraged while imports are made to decline. One way of accomplishing this is by adjusting the exchange rate through currency devaluation. Devaluation of a currency may improve or worse the trade balance the ultimate outcome of currency devaluation depends on the nation’s price elasticities ((responsiveness)) of demand for exports and imports. (Baker, 1995) forex rate

Devaluation increases the relative prices of foreign goods (imports) in the devaluing country; as a result the demand for home goods in both countries (the devaluating and its trading partners) will increase. An increase in demand for home goods, increase the exports and decrease imports of the country. The increase in the relative prices of imports makes the imports more expensive in terms of exports which cause the deterioration of the trade balance. From these two effects we cannot say that devaluation is way to improve or worse trade balance. To conclude the total effect of devaluation, we have to compute the price elasticities (responsiveness) of demand for exports and imports.

There are a number of studies regarding the impact of devaluation on the Ethiopian trade balance with opposing results. While some of them identified devaluation to have a positive impact on the trade balance, other studies do not seem to support the positive impact of devaluation on the trade balance.

Historical Background

From the late 1940s through the early 1990s, the Ethiopian currency, the Birr, remained rigidly pegged to the US dollar. During 1945-71 the Birr/US$ rate remained unchanged at 2.5. It was revalued to 2.3 in December 1971 and then to 2.07 in February 1973 and remained at that level until October 1992. The natural outcome of this passive exchange rate policy was the development of an illicit parallel market for foreign exchange, where at times the foreign exchange premium (the spread between the two rates) reached as high as 230 percent. The overvalued official exchange rate, coupled with stringent foreign exchange rationing, provided fertile ground for illicit cross border trade, particularly in coffee and live animals.

As part of the overall reform program of the new government, the exchange rate was adjusted from Birr/US$2.07 to US$5.00 on 1 October 1992 (a 142 percent devaluation). Following the devaluation, the exchange rate was allowed to be determined according to demand and supply conditions in the foreign exchange market, with the National Bank of Ethiopia (NBE, the Central Bank) intervening only to smooth out erratic fluctuations in the rate. By the end of 2002, the rate was around Birr/US$8.75. What exists today can be broadly described as a managed float.

The NBE has taken a number of initiatives to improve the functioning of the foreign exchange market with a view to helping to keep the exchange rate at realistic levels and to gradually harmonize the official and parallel foreign exchange markets. These included eliminating foreign exchange rationing, inaugurating a foreign exchange auction in May 1993 (on a fortnightly basis to begin with and on a weekly basis since September 1998) , permitting commercial banks to open foreign exchange bureaus to engage in retail foreign exchange trading (October 1996), and permitting inter-bank foreign exchange trading (September 1998).

The annual increments between the year 1964 and 1971 was zero as shown in the table above. This indicates that there was no misalignment of exchange rate or no exchange controls in this period. However, there was over time increase in the premium from 1972 until 1991, on average. Consequently, there was rapid expansion of in illegal trade and smuggling. The smuggling of major exports had its own implication for the continuous decline in the trade balance and for the shortage of foreign exchange.

In a desire to solve the problems related to the fixed exchange rate the EPRDF led Ethiopian government devalued the Ethiopian Birr by 241.5% in 1992 in nominal terms. After this massive devaluation the price of one US dollar raised from Birr 2.07 to Birr 5.00 in nominal terms. This was 42% devaluation of Birr in nominal dollar terms; this is the decline of the Birr in nominal dollar terms from 0.48 before devaluation in 1991 to 0.2 in 1992 which is after devaluation. As a result of this, as we can see from table 1 that premium decreases from 3.38 in 1992 to 1.48 in 1992. Therefore devaluation of the country’s currency helped to reduce the gap between the official exchange rate and parallel exchange rates but did not remove the premium.

Foreign exchange shortage

A common retort to sustained foreign exchange shortages is to devalue the currency. This lowers demand for imports as import prices rise in domestic currency terms, while at the same time foreign exchange earnings from exports rise as demand for more competitively priced exports rises. When the devaluation is large enough, demand for and supply of foreign exchange will return to equilibrium. This may lead to imported inflation, especially in import-intensive countries such as Ethiopia. When monetary authorities deem a foreign exchange shortage to be short term in nature (for example, until such time as exports recover from a shock), they may attempt to maintain the level of the nominal exchange rate by borrowing in the international market and buying local currency to prop up the exchange rate. While this is an effective strategy in the short run to limit exchange rate volatility, it raises government debt and is therefore not sustainable in the long run.

Under a fixed exchange rate regime any excess demand for foreign exchange will lead to the development of a parallel market for foreign exchange, where foreign exchange is sold at a premium (and often illegally so). Foreign exchange shortages may be the result of insufficient export revenues or declines in foreign exchange from other sources such as donor grants or foreign direct investments. Under a fixed exchange rate regime, a typical response to foreign exchange shortages is for monetary authorities to ration the supply of foreign exchange available to the “regular person on the street.” This is often done in order to prioritize the importation of essential goods such as fuel or medical supplies. If those with access to foreign exchange at the official exchange rate are importers, the limited supply of imported goods means that the importers can charge a premium for the goods they bring into the country.

Similarly, if those with access to foreign exchange are currency traders, they can sell the acquired foreign exchange to importers, who then have no choice but to price the imported goods at the parallel exchange rate rather than at the official exchange rate. “At the height of the foreign exchange rate crisis in Malawi, a premium of up to 100 percent over and above the official exchange rate existed.”1 This scenario appears unlikely in the absence of a forex market and in a tightly controlled forex regime like Ethiopia.

On the socioeconomic front, the most profound outcome of the devaluation is its impact on the distribution of income. It is probably very safe to assume that it is not the poor that benefit from rents associated with the exchange rate premium. The poor are, however, affected by rising prices. Under a flexible exchange rate regime, wealthier households no longer capture the rents, while rural households (and farm households in particular) benefit from improved export opportunities and lower domestic prices. This result challenges the perception that devaluation will harm the poor more than will a fixed exchange rate regime. Many of the poor live in rural areas and are employed in the agricultural sector, a sector that has suffered losses in recent times due to an uncompetitive exchange rate and falling international prices.



* Karl Pauw, Paul Dorosh and John Mazunda, Exchange Rate Policy and Devaluation in Malawi, IFPRI Discussion Paper 01253, 2013
* Haile Asmamaw, The Impact Of Devaluation On Trade Balance: The Case Of Ethiopia, Department Of Economics University Of Oslo, MAY 2008
* Baker, J.M, 1995, International Economics. New York, McMillan publishing company.
* Befekadu, D. and Kibre, M., 1994, Post devaluation Ethiopian economy, Ethiopian economic association, Addis Ababa.

Andargachew Tsigie's saga Articles ESAT Ethiopia featured Patriotic Ginbot 7 (frm. Ginbot 7) Security Somalia

Why do Ethiopia’s terrorists hold British passports?

The recent arrest of Andargachew Tsege, secretary general of Ginbot 7, an Ethiopian terrorist group, by Yemen and his extradition to Ethiopia to face justice would have been largely ignored by the international media like similar cases in the past.
However, the citizenship of the detainee, which is British, grabbed the focus of major news outlets and wedged the British government into uncomfortable position. This is the second British national to be arrested after Abebe Wondemagegne, a lower ranking operative of the same group who was caught in Addis Ababa while preparing to execute a bomb plot.

The news stands at the British government expressing “deep concern” by the development. What is concerning for Ethiopians is the provision of British passports to anti-Ethiopian groups. This becomes disconcerting when reinforced by the dishonest coverage of the whole saga by British and Qatari media.

The news headline of The Guardian calls Andargachew “opposition leader” and Al Jazeeera even dared to call him “opposition activist”. The only thing wrong with these expressions is that they are false and the writers know it. The question is why they bothered to sympathize with a terrorist whose record is full of foiled plots.

Terrorists and Activists

Ginbot 7 is a proud group, it tells its intentions and tactics openly. The group stated it’s “struggle” uses “all means” to achieve its goal of controlling Addis Ababa. A cursory look of its website, which is filled with ethnically charged allegations and you tube videos of the group’s “4th round military trainees” leads the reader to label it as terrorist or at least a violent rebel group. The chairman of the group, Berhanu Nega, even threatened retaliation on the life and safety of government officials after the June 23 extradition. It is only fair to assume those at The Guardian and AlJazeera to Google the group before writing a news piece.

Addis Ababa accuses Ginbot 7 for being behind foiled terror plots and a foiled attempt to “overthrow of the constitutional order” for which the two leaders of the group Berhanu Nega and Andargachew Tsege were sentenced to death in absentia. The Ethiopian parliament and the East African regional body Inter-Governmental Authority on Development (IGAD) both designated the group a terrorist organization. The US state department later came closer to reality by describing Ginbot 7 as a “group which espouses violent overthrow of government” in a 2011 report.

The group is financed by the government of Eritrea, the pariah state dubbed “Africa’s North Korea” that is under UN sanctions for financing and training terror attacks in the region. The regional spoiler Eritrea, in its bid to destabilize its arch-enemy Ethiopia, harbors various violent groups including Ginbot 7, ONLF and Al-Shabab, which is a member of Al Qaeda. A leaked audio recording of Ginbot 7 chair Berhanu Nega discussing the utilization of the 500,000 USD fund from Eritrea lay to rest any suspicion, if there was any, of who runs the group.

Based Where?

It is understandable if you assume the group resides in Ethiopian deserts bordering Somalia or in some hostile neighbor like Eritrea, after all that is where terrorists or rebel groups operate. Here is a shocker; the head quarter of the group is the last place you look for, the United States. Its leadership boasts about their final preparation for the overthrow of Ethiopian government adorned with military fatigues and hold fundraisings for “army trainees” at prestigious hotels of Washington. The icing on the cake – they own a TV station ESAT) broadcasting subversive propaganda into Ethiopia.

The chair of the group is a US citizen and the Secretary General British. They move around with the safest (security wise) passports in the world to conduct activities that are anything but peaceful. And they are not the only Ethiopian terrorist group to freely operate in the US, a supposedly “close partner” of Ethiopia.

For someone well versed in history, there is no surprise in the US sheltering, training and financing terrorist groups against nations that does not toe its line, or “international order” as usually put. It also lets groups operate freely against “partners” that exercise independent economic policies contrary to US preferences while cooperating on mutually beneficial agendas. These groups serve the purpose of keeping these “partners” on their toes and as an alternative if and when the US decides to change the regime. The US ally Britain plays a supportive role in this imperial march to global hegemony.

What’s in it for the media?

In light of the evidence to the contrary, The Guardian and AlJazeera gave the group serene labels like “opposition” and “activist” when the group advertises itself as hard core and militant “using all means” and “targeting all officials”. The dishonesty and bias exhibited is truly astonishing.

Many expect better journalistic standards from at least The Guardian and BBC even though they are not surprised by AlJazeera. The sympathetic reporting of AlJazeera provided to groups that are violent or/and Qatar friendly is now a common knowledge. Some believed that early on when the channel delivered exclusive videos of Bin Laden.

What people are slowly noticing is that, just as AlJazeera is a foreign policy tool of it’s owner Qatar, the same goes for the western corporate media. The only difference being the foreign policy direction of the government is secondary to their private owners, the wealthy elite hell bent on neoliberal domination.

Ethiopia, which refuses to ascribe to their neoliberal economic model and let them acquire its strategic financial and service institutions, and still succeed in registering one of the highest growth rates in the world is “a bad example” for the rest of Africa. The place Ethiopia holds in the hearts of Africans as a beacon of independence only adds to their dismay making her the target of their smear campaign and a “color revolution” regime change. The ever closer relationship between Ethiopia and China doesn’t help either.

Fortunately for them, there are plenty of groups ready to serve as long as they are provided passports and safe haven in western capitals and a diplomatic support when in need. This will only increase as election nears. As we all figured by now, elections are the choice of the day in achieving regime change at less cost and installment of a whipped regime.

It is the Ethiopian government who should express its concern when its “partners” harbor and provide passport to terrorists.

Let’s hope there are some real journalists left to tell the reality as it is and come in defense of this waking African giant.

Articles Ethiopia featured Media Opposition politics

Ethiopian extremists’ facebook posts’d be depressing you – Insights from a new research

Last month, the international media was buzz with a controversial research conducted on facebook. The study, titled “Experimental evidence of massive-scale emotional contagion through social networks”, published on the Proceedings of the National Academy of Sciences.

Cornel University researchers and Facebook’s code data science unit teamed up to test whether emotional contagion occurs outside of in-person interaction between individuals by reducing the amount of emotional content in the News Feed. newsfeed

For a period of one-week in 2012, .they altered the content of news feeds for a random sample of 689,003 Facebook users. Participants were randomly selected based on their User ID, resulting in a total of ~155,000 participants per condition who posted at least one status update during the experimental period. For one group of users they removed content that contained positive words, for another group they removed content that contained negative words. They then measured whether biasing the emotional content changed the emotional content of status updates by the users. It did. Making feeds more negative has led to more negative behavior, and vice versa.

The study of “Emotional contagion” is a science much older than the advent of social media. A study by Elaine Hatfield et al a decade ago claims:

“There is considerable evidence that people tend: (a) to mimic the facial expressions, vocal expressions, postures, and instrumental behaviors of those around them, and thereby; (b) to “catch” others’ emotions as a consequence of such facial, vocal, and postural feedback.” And this, the study concludes, “ tell us something about the awesome contemporary power … of the mass media as these agencies of large-scale emotional and cognitive contagion continue to expand their capacities to define reality for billions of people.”

Emotional contagion is well established in laboratory experiments, this new study however ventures into unexplored territory. It tries to test whether emotional contagion, people transferring positive and negative emotions to others, occurs outside of in-person interaction between individuals.

The research on emotional contagion on facebook was severely criticized for having methodological problems and small statistically significant results in addition to being conducted without the consent of users.

Nevertheless, it tells us that our emotions are impacted by the contents our facebook newsfeed even if in a smaller scale. The researchers wrote:

When positive expressions were reduced, people produced fewer positive posts and more negative posts; when negative expressions were reduced, the opposite pattern occurred. These results indicate that emotions expressed by others on Facebook influence our own emotions, constituting experimental evidence for massive-scale contagion via social networks.

This got me thinking: How are we affected by the daily negative posts from the Nay-Sayers and the facebook army of the far-right?

The daily barrage of negative posts and comments from the far-right facebook army that crowd our newsfeed will surely contribute in dampening our mood according to the study. If we subscribe to certain individuals/accounts that produce negative posts 2-5 times a day (come on, you know who they are), the emotional damage we receive may require a study on its own merit, probably on a clinical level.

The emotional contagion will lead us to produce “fewer positive posts and more negative posts” multiplying the effect. This may explain why the discourse on the Ethiopian facebook space is mostly negative.

So what to take from this study? Get rid of the Nay-Sayers if you care for your mental health. Or better, the facebook posts of the opposition seriously harms you and others around you.