In this dying phase of the prevailing modern world system, the universally established administrative structures of nation-states are proving convincingly inadequate. The trinity (legislative, executive and judiciary) that obtains in each of the countries of the world has been effectively captured by the logic of capital! The human mass or what we affectionately call the sheeple, doesn’t seem to be at the helm of social reproduction anymore. The existing order has also become an avowed enemy of nature, rhetoric aside. This supremely alienated and alienating collective existence is the source of many current and impending catastrophes! All serious attempts to solve our major worldly problems are proving futile, mostly due to the old and failing governance structure. Activist intellectuals, all over the world, must rethink these serious shortcomings, with a view to come up with new humanly empowering socio-political structures that can effectively resist the ongoing destructive greed system!
Let us look at countries close to home that are being impacted by the failure of their governance structures. In Kenya and Ethiopia formally established institutions are failing to solve concrete problems their sheeple are facing. Today, the two countries are classified as ‘fragile states’, by the global power that be. In Kenya, the old institutions of political governance have failed to empower a large segment of society. As a result, arresting potential/actual disturbances on the ground has become a serious challenge to the ruling elites. By and large, the status quo, stuck in its old stifling conventions, seems unable to look at fresh approaches with a view to install empowering alternatives to all and sundry. Characteristically, the ruling politicos want to conveniently undermine the shortcoming of the existing order, which is fueling unrest. In Kenya, election outcomes are almost always predictable, as they are essentially based on ethnic affiliation. Those with the numbers always win, while a significant number of the population always loses. It is another case of ‘winner takes all.’ In highly diverse nations such a political arrangement might not secure the peace in the long run. In the case of Kenya, a little federalism might go a long way in securing a stable political arrangements between nationalities, if done right. In this regard, committed activist intellectuals are very much urged to lead initiatives for a more equitable governance structure that can potentially bring peace, harmony and sustainability to all!
The uprisings in Ethiopia seem to start from the regions, at least so far. It is only Addis and Dire Dawa that have chartered status, i.e., ultimately under the control of the federal government. The crux of the governance problem in Ethiopia seems to be; while the politicos try to assert the autonomy and relative independence of their regions, from which they derive their real power, the federal government is left without committed ownership, proper leadership and a participating populace. This paved the way for various myopic visions to dominate long term strategic planning of the country’s affairs. The corruption and abuse of power, particularly in ownership deprived Addis as well as federally run organizations like financial institutions, etc. became maliciously protracted! The trinity under the control of the ruling party/front, without much room for other alternative views, became complacent to the mal-governance taking place on the ground. This monopoly of the state by one entity resulted in gross abuse of power leading to massive and unprecedented corruption unheard and unseen in the country’s history! In the absence of check and balances, grievances were conveniently ignored by the power that be. As a result, the sheeple/country is paying bloody price for the excesses!
In a nutshell, the situation in Kenya is lack of sufficient empowerment to a number of nationalities. In Ethiopia, it is the neglect of nationhood, at the expense of increasingly centrifugal regionalism. In other words; in the case of the former, it is probably the absence of federalism, while in the case of the latter, it might well be too much of it, lying at the root of increased disturbances! Unlike Kenya, however, centralized administration in Ethiopia had undergone numerous internal revolutions going back centuries (Tewodros, etc.) In particular, the recent Great Ethiopian Revolution, which erupted in 1974 (G.C.) and abolished, amongst other things, the private ownership of land, remains a searing experience of the nation and the revolutionary generation. To simply allow criminality and mal-governance to take deep root, yet again, in this land of ‘justice warriors’ might not be possible, going forward. Don’t be fooled, the uprising in the regions can easily coalesce to bring down the reigning order, unless the ruling party convincingly tackles the overgrown decadence and degeneration unleashed by the monopolistic control of political power. Visibly unethical practices that have become the norm, compliment of the all-powerful ‘Mafiosi State’, must be stopped immediately and the culprits behind these operations must be brought to justice. Here, we are not talking about kangaroo courts instituted to facilitate and serve the ‘Mafiosi State’! To recall; we have defined the ‘Mafiosi State’ in Ethiopia as an entity operating behind the scene leveraging the infrastructure (institutional or otherwise) of the state/government for its own self-perpetuation, at the expense of the masses. It is abusive beyond imagination and operates with impunity!
This was first published in February 2018
ACTIVATING THE ACTIVISTS
Gov’t sharpens monetary moves to slash inflation
The Board of Directors of the National Bank of Ethiopia (NBE) imposes caps on fresh loan disbursement with some bold monetary decisions on the aim to curb inflation. The move however has raised eyebrows within the experts’ community who argue that the decision may not be as successful since the inflationary situation needs further corrections.
The decision that includes slashing direct advance (DA) targets to narrow inflation to below 20 percent at the end of the budget year.
During their regular meeting on Monday August 7, the NBE board chaired by Girma Birru (Amb), Advisor to the Prime Minister, Ahmed Shide, Minister of Finance, Teklewold Atenafu, Advisor to the PM, Eyob Tekalign, State Minister of Finance, Mamo E. Mihretu, Governor of NBE, and Fikadu Digafe, Vice Governor of NBE, passed several measures to control the inflationary pressure in the economy.
As Mamo highlights, inflation is hugely affecting the public, “To curb the trend and improve savings and investment; job creation and creation of conducive environments to eradicate poverty, is a must, of which, it is the right time to take new monetary policy measures.”
According to the Governor, supply side challenges, high production cost and the macroeconomic policies that particularly rely on monetary and fiscal policies are major points for inflationary behaviors in the economy.
As he depicted, besides the major measures, the central bank has taken other areas like; improving the food and nonfood commodities supply side, structural measures including accelerating the logistics sector, and improving the fiscal policy.
On its part, the central bank disclosed that it has imposed a cap on government overdraft and private sector loan disbursement.
Centered on matters DA, Mamo expressed that the board has passed a decision for the central government to rely on alternative fund sources rather than taking overdrafts from NBE.
“The board has reached consensus that the Ministry of Finance should consider the DA as a last resort when adequate funds are not mobilized from the Treasury Bill,” Mamo cited.
According to the decision in the budget year, the DA that the central government will take will not exceed one third of the amount that it received in the budget year closed in June.
In the 2022/23 budget year, the central government has accessed huge sums as overdraft from NBE to which experts claim the amount is incomparable from the preceding years.
According to MoF’s debt bulletin, in the first three quarters of the 2022/23 budget year, the central government received 140 billion birr as DA, which has an 84 percent increment compared with what it took the whole of the 2012/22 financial year.
Experts claimed that the DA is one of the major instruments which have caused inflation to gallop. In the 2022/23 budget year, the government budget deficit peaked at its highest position against the recommended rate.
To come up with improvements in the current budget year that started July 7, the government has disclosed its strong stand to manage its expenditure and narrow its budget gap against the GDP.
In his budget speech early June, the Finance Minister, Ahmed Shide, said that the budget deficit is largely filled by treasury bills and Treasury bonds that were introduced in the mid 2022/23 budget year.
The gross budget deficit for the 2023/24 budget year will be 2.48 percent of the GDP coming in at 281 billion birr. The budget deficit has shown reduction in terms of the share of GDP when compared to the 2022/23 budget year of 3.4 percent, while the recommended share remains less than three percent.
For the budget deficit, 242 billion birr will be covered from domestic source while the remaining 39 billion birr is expected to be covered by foreign loans.
According to Ahmed, 53.7 billion birr of the gross budget deficit will be allocated for local and foreign debt settlement.
Despite this, experts said that the new decision from the central bank may have some sort of relief in the economy.
Eshetu Fantaye, a financial industry guru, said that if there is strong control on monetization at the foreign currency and some other key areas the will be effective.
Regarding private sector borrowing, the central bank has also imposed a cap.
According to the decision, the year on year growth of loans will not exceed 14 percent as of June 2024.
The annual loan growth rate on some banks whether big or small remains very high as per the annual report of private banks, while some of the banks have medium growth rates.
According to the annual report of private banks for the financial year that closed June 2022, some of the banks have registered a loan annual growth rate of more than 50 percent, while some big banks have more than 40 percent annual increment on their loan portfolio while the smallest of the lot have more than 24 percent annual increment.
However, some experts opined that this has not been the case with the 2022/23 financial year.
As per directive ‘MFAD/TRBO/001/2022’ which became effective as of November 1, 2022 imposed banks to buy a 20 percent NBE bond for fresh loan disbursement. This move has now been attributed to the slowdown of the loan portfolio growth.
In terms of the cap on banks experts like Eshetu said that the cap on loans may not have significant impact on the inflation.
Eshetu said that in connection with the NBE bond, the banks’ capability to disburse loan has already dialed down.
“The engulfing factors for inflation are diversifying and as a result the cap on the loan will have very limited contribution,” he added.
“The illegal forex rate is almost taking the shape of the official rate and traders are calculating their business with the parallel market rate rather than the official rate,” he elaborated, adding, “It will have a positive impact in the short term but it will not have a big impact in the long run. Improving the supply side is crucial to curb the inflation.”
“Imposing a cap on loans may have significant impacts in regulating money-multipliers. Nevertheless, there are several issues that are aligned with macroeconomic and supply causes, export and customs regularity, foreign currency regime, and others that are not properly regulated with economic issues that should be corrected,” the economist told Capital while he underlined these references for government to keep watch of the matter.
As per the new measures, the NBE board also increased the interest rate for individual banks’ lending facility, in order to help commercial banks meet unexpected liquidity needs by borrowing from the NBE.
As per the decision, the interest rate is now increased to 18 percent from the current 16 percent that was effective for two years, while the years before that the rates went at 13 percent.
The other policy decision taken by the board is the revision of retention and utilization of export earnings and inward remittances.
About 20 months ago, NBE had imposed a directive which stated that exporters of goods and services and recipients of inward remittance should have the right to retain 20 percent of their export earnings in foreign currency indeterminately in a retention account after the deduction of 70 percent surrender requirement from the total earnings and the remaining percentage to their respective bank.
According to the NBE’s ‘foreign exchange surrender requirement of banks directives no. FXD/83/2023’ article 3.1 that was issued on August 11, a bank shall surrender 50 percent of its receipts from export of goods and services, 70 percent from private transfers and NGO’s transfer to the NBE.
As per article 4.2 of retention and utilization of export earnings and inward remittances directive no. FXD/84/2023 that was issued on August 11, exporters of goods and services shall have a right retain 40 percent of their export earnings. However, there are no changes on recipients of inward remittance from the preceding 20 percent.
Experts said that the 50/50 threshold may have a positive impact for the inflow of hard currency.
However they said that since there will not have correction on the black market scheme the impact on the inflation will be very limited.
In the past ten years, the inflation has shown an increment of 16 percent every year, while in the past two years the inflation has surpassed 30 percentage points.
Broad money edges past two trillion birr
Broad money supply (M2) blows past two trillion birr in the third quarter of the previous fiscal year. Following suit, the currency outside the banking system also continues on its run.
The National Bank of Ethiopia’s (NBE) quarterly bulletin which reviewed the third quarter of the 2022/23 fiscal year that ended on June 30 indicated that the M2 surpassed two trillion birr for the first time.
The analysis of the economic activity of the period that ended March 30 stated that broad money supply stood at 2.06 trillion birr at the end of the third quarter of 2022/23 reflecting a 30.1 percent annual growth.
The M2 in the second quarter of the reviewed fiscal year was 1.94 trillion birr, which was 5.6 percent lower than the third quarter, while the figure was higher in contrast to the similar period of the year prior which was 1.58 trillion birr.
The increment is said to have occurred mainly due to a 28.5 percent expansion in domestic credit that reached 2.27 trillion birr, up from 1.77 trillion birr a year ago, offsetting 71.5 percent and 41.6 percent respective contraction in external asset (net) and other items (net).
As the document showed, net claims on government grew by 46.9 percent while credit to the non-government sector increased by 23.8 percent.
Component wise, quasi-money supply, which includes savings and time deposit, showed a 30.7 percent annual and 5.3 percent quarterly expansion.
The narrow money supply, which is also known as M1 inclusive of currency outside banks and demand deposit, exhibited 29.0 percent annual and 6.3 percent quarterly increment. The contribution of narrow money to broad money growth was 32.4 percent and that of quasi money 67.6 percent primarily reflecting the significant growth in savings deposits in the banking system.
However, the amount that was circulating outside banks stood at 217.2 billion birr with almost 27 percent increment from 171.2 billion birr a year ago.
Compared with the preceding quarter, the currency outside banks climbed by 8 percent or by 16.1 billion birr.
As noted, the rate on currency outside banks has been growing of late to which experts claim it will affect the banks’ liquidity.
When the government introduced cash on hand and withdrawal limit, which was followed by banknotes demonetization in 2020, the currency outside the banking system, was highly eroded, while after a few months it has taken an aggressive growing path to its former position.
The NBE bulletin indicated that reserve money reached 448.9 billion birr at the end of third quarter 2022/23, indicating a 27.1 percent annual and 6.8 percent quarterly growth. This significant annual increase in reserve money was attributed to 28.5 percent rise in banks’ deposits at NBE and 26 percent growth in currency in circulation.
Regarding current account deficit (including official transfers) narrowed from USD 1.1 billion last year to a deficit of USD 844.7 million the reported quarter.
“This was attributed to a 7.1 percent increase in net private transfers coupled with 7.5 percent decline in trade deficit. Service trade surplus and official transfers declined by 34.2 percent and 5.1 percent, respectively,” it added.
EEU wires its ambitions high for 2023/24
The Ethiopian Electric Utility (EEU) targets to expand its revenue by more than a quarter in the 2023/24 budget year.
The state owned electric utility announced that in the 2022/23 budget year it attained 94 percent of its targets in terms of revenue.
Shiferaw Telila, CEO of EEU, pointed out that in the 2022/23 budget year the Utility had targeted to generate 37.7 billion birr, while actual achievements realized 35.4 billion birr or 94 percent of the target.
Of the stated actual generation, 25.6 billion birr was secured from electric energy sales. In the period, EEU had targeted to generate 27.6 billion birr from energy sales.
In the year under review, the company also earned 9.6 billion birr from new electric line connections and 240 million birr from property disposals.
The year saw over 353 thousand new customers gaining access to electricity from the target of over 522 thousand, which was a projection attainment of 67.6 percent.
In the current budget year, EEU has projected to generate 32.8 billion birr from electric energy sales which is 7.2 billion birr or over 28 percent higher from the actual performance attained in the 2022/23 budget year.
Similarly, in the budget year, EEU has targeted to earn 11.9 billion birr from new electric line connections and 260 million birr from disposals.
In the period, 600 thousand new customers are targeted to be covered by the EEU electric system.
In the 2023/24 budget year, in general, the utility has projected to generate 45 billion birr in revenue which is 9.56 billion birr or 26.8 percent increment from the actual performance registered in the 2022/23 budget year.
