The United Nations World Economic Situation and Prospects (WESP) mid-2020 report, released recently reveals that against the backdrop of a devastating pandemic, the global economy contract sharply by 3.2 per cent last year. The global economy is expected to lose nearly $8.5 trillion in output over the next two years due to the COVID-19 pandemic, wiping out nearly all gains of the previous four years. The sharp economic contraction, which marks the sharpest contraction since the Great Depression in the 1930s, comes on top of anaemic economic forecasts of only 2.1 percent at the start of the year.
According to the report, GDP growth in developed economies plunged to -5.0% in 2020 and a modest, 3.4% growth, barely enough to make up for the lost output, is expected in 2021. World trade contracted by nearly 15 per cent in 2020 amid sharply reduced global demand and disruptions in global supply chains.
In 2020, nearly 90 per cent of the world economy has been under some form of lockdown, disrupting supply chains, depressing consumer demand and putting millions out of work. The developed economies are contracted by 5.0 per cent in 2020, while the output of developing countries will shrink by 0.7 per cent.
More than any business school corporate case study ever could, the Covid-19 pandemic has made crystal clear how economically and socially interconnected our world has become. This pandemic has revealed how globalization, with its unparalleled levels of human interaction and mobility, has facilitated the rapid spread of this highly contagious disease. Faced with a global health disaster, governments around the world are doing their utmost to save human lives and not thinking about the future of globalization as an existential priority.
Given the above factual explanation, Joseph Vann, Chair of the Strategic Initiatives Department at the George C. Marshall European Center for Security Studies recently said “for years to come, business schools around the world will likely be citing the 2020 Covid-19 Coronavirus crisis as one of the best all time examples of a Black Swan event. For the global economy, it will likely cause a complete re-evaluation of our collective attitudes towards globalization”.
But while mega efforts are underway to manage the health challenge and the economic challenge, it is not too early for other policy makers to begin examining why globalization did not work out the way its advocates either wished or thought it would. This examination should yield some very clear answers.
Joseph Vann, Director of the Program in Countering Transnational Organized Crime Programme at the George Marshall European Center for Security Studies stated that the substantial freeing of market forces during the post-Cold War era directly improved the wellbeing of people around the world. The freedom to trade practically at will and exploit market economies, happily seduced nations into a new and complex system of economic interdependence.
Market exchanges and specialization clearly demonstrated greater efficiencies in the ability to satisfy the needs for goods and services, and this created a thriving international marketplace. Manufacturers around the world grew bigger by using ever deeper supply chains and taking advantage of a global division of labor. All of which was good given no disturbances to the status quo.
Joseph Vann further noted that simultaneously, we witnessed voluntary de-industrialization in Western countries and the transfer of industrial production to emerging economies. As a result, and because of conscious policy decisions, China quickly became one of the world’s leading manufacturing powerhouses. In the search for markets with the lowest costs of production, the total stock of foreign direct investment into China in the last two decades rose from $193 billion to $1.6 trillion in 2018.
Valbona Zeneli noted that beyond partial de-industrialization, especially prominent and subsequently politically treacherous, in the United States and UK, the concept of “just in time” delivery proved an efficient economic alternative to the costs of maintaining inventories. Before we realized it, the concept of just in time manufacturing was born. Advanced economies, using their IT technologies and data driven know how, created the perfect logistics architecture. Managing the global supply chain and its distribution networks, so the underlying promise, could be handled with the ease of a mouse click.
According to Valbona Zeneli, all of this brilliance in getting products to market seemed to have overlooked the single point of failure that could ultimately disrupt the global economy, the growing deficiency in the global diversity of suppliers. The Covid-19 pandemic has demonstrated the lack of diversity in existing global networks. Supply chains have failed. Orders are backlogged. The lack of options with regard to suppliers are now vulnerabilities and have become painfully visible. It was not just the promise, but the firm assumption of “just in time” practices that had us mislead ourselves into reducing stocks and accepting too little redundancy in production capability and capacity to meet demand.
In a crisis situation, production bottlenecks can cost human lives. To give but one example, the lack of critical medical supplies is preventing the fight against Covid-19. By some estimates, more than 50% of the medical masks are made in China. The backlog in production and delivery has cost the world dearly. China is also the largest exporter of chemical ingredients used in antibiotics and other drugs. Medical companies and hospitals having grown dependent on China working its just in time planning magic are now struggling.
Michael Zurn, Director of Research on Transnational Conflicts and International Institutions at the Social Science Research Center in Berlin argued that for all the good and the efficiency it created, globalization was never meant to absolve national policy makers of the requirement to maintain economic sovereignty. Nations and their government leaders have a moral duty to maintain economic sovereignty by ensuring that their economies are resilient to the inherent traps of globalization.
Michael Zurn noted that failing on that account is not a failure of globalization, but a profound miscalculation and form of over-optimism at the national level. This also makes plain why de-globalization efforts would bring more disadvantages than wins.
According to Valbona Zeneli, the key lesson learned from the current crisis is this: The maintenance of sufficient economic room of maneuver in case something does not work perfectly should be the core goal of globalization. In fact, this kind of foresight is what the art of management is all about.
COVID 19 and the global economy
Ministry of Agriculture eyes to triple dairy production
Ministry of Agriculture targets to triple the dairy production in the coming decade to 10.4 billion liters, while access to improved genetics in the sector has acquired prior attention in the strategic plan.
On similar developments, the first dairy animal parade was held early this week which was organized by the International Livestock Research Institute (ILRI) and the National Animal Genetic Improvement Institute (NAGII).
During the parade held on Tuesday March 30, it was disclosed that the farmer-feedback systems which assist farmers to improve their productivity was piloted successfully.
The information of ILRI indicated that milk production in developing countries, including Ethiopia, is dominated by smallholder dairy farmers, each keeping 1-3 dairy cows. Majority of these farmers are not currently extracting optimum benefits, because herd and cow production, and productivity levels remain low.
It explained that in Ethiopia, African Dairy Genetic Gains (ADGG), farmer and country-focused ILRI-led project, is jointly working with NAGII, and other domestic and international partners. To this end, the program objectives are to establish performance recording and sampling systems in Ethiopia and Tanzania. The information and samples will be used to develop systems to select crossbred bulls and cows of superior genetic merit for artificial insemination (AI) and natural mating; pilot farmer-feedback systems that assist farmers to improve their productivity; and establish public-private, non-government organizations, and producer partnerships necessary for funding and scaling the on-going ADGG program into a regional platform.
Under the pilot program that took five years, the very best males were selected to provide semen for AI through national and regional AI centers in Ethiopia. “This way, the genetic variability among and within cattle breeds in Ethiopia are being efficiently exploited, while at the same time a population of resilient yet productive dairy genetics is slowly being built,” the ILRI document explained.
The project routinely captures herd performance records of individual animals, their production environment and genomic information. The data generated is used to identify appropriate dairy genetics, including crossbred bulls of superior genetic merit for increased milk production, fertility, longevity, and resilience. ADGG is operating in 98 districts in Amhara, Oromia, SNNP, Sidama, and Tigray, regions, and Addis Ababa.
Elite animals have been certified and promoted to AI centers, the top 3 locally adapted crossbred bulls were transferred to AI center for wider national use.
Asrat Tera, Director General of NAGII, said that the new initiative has its own roll to reduce the demand for foreign currency for the import of semen.
MoA has targeted to expand the market oriented milk product and productivity for the growing demand in the country.
Fikiru Regessa, State Minister of Agriculture, reminded that the country is endowed with large population of cattle but the product and productivity of milk is low in terms of fulfilling the existing demand, “It needs to be linked with improved genetics, animal health, feed, and husbandry practices.”
He told media that the ministry projects to boost the milk development to 10.4 billion liters by 2030 from the current four billon liter.
Fikiru, who is also a molecular biologist and a genetically engineering scientist by profession, said that to attain the goal MoA is working with NAGII in collaboration with international partners to expand and improve animals in the sector, from the current poor level.
He said that from the targeted milk production, the cattle sector will take the major share, while camel and goat milk is the other product.
In Ethiopia’s livestock sector, improving the genetics has been conducted for many years for breeding purposes. For the last seven decades, the country had imported semen for breeding with local animals for better output. However, there was some initiative for the assessment of required and actual data was not properly registered regarding the production of milk, health and breeding value at the farmers’ level.
Under the current program, it has been covered on selected sites alongside an organized database for the identification of best performing animals.
According to experts, the program has achieved ‘identifying the expected results.’
The ADGG program supports Ethiopia’s national dairy recording center to operate a digital data capture platform that has enabled more than 70,000 dairy herds and 110,000 animals to be registered and their pedigree and performance data recorded.
Genomic information is captured on a sub-set of the animals and all records are appropriately analyzed to generate breeding values that are used to rank animals.
Currently, about 3 million of the total cattle population is included on improved animals in Ethiopia, while the total number is 61 million. “We select the top performing bulls to provide semen for AI through national and regional AI centers in Ethiopia and circulated to the farmers. It replaces the cost of foreign currency allocated for the import of improved bulls,” Fikru said.
“This way, the genetic variability among and within cattle breeds in Ethiopia are being efficiently exploited, while at the same time a population of resilient yet productive dairy genetics is slowly being built,” the ADGG document explained.
“It will also scale up the scheme since farmers would get information about the current initiative,” the State Minister said.
Improved cows give about 15 liters of milk per day, while local cows’ average milk production is 1.5 liter per day.
“We have to focus on production based husbandry practices than increasing the number of animals,” Fikru explains, “the ten year strategic plan has also given main attention to the expansion of improved animals coverage.”
The 14 AI centers will manage the plan with different breeds. According to Fikru, synchronization and scaling up will be the next mission and facilities and infrastructures requiring empowerment have got attention by MoA to fill the growing demand.
He added that the private sector as investor and public private partnership will also be part of the initiative. “Currently, the involvement of the private sector in related with improved animals’ development is concentrated in urban areas but that is supposed to be expanded and grown, thus the government will have different initiatives to attract the private sector,” he expounded.
In the aspect of giving attention for improved breeds, the government is further looking for feeds for the animal as per the demanded level.
“Currently, the feeding center like open grazing land have deteriorated thus farmers are now alert and prefer to focus on quality than quantity of cattle which boosts the demand for improved animals,” the State Minister said.
Presently, there are four animal feed sources; open grazing land, which is highly reduced because of urbanization, crop agriculture mixed that dominate the mid and highland areas, whilst the third source is improved animal feeds and multipurpose trees that shall accommodate as alternative at densely populated areas. Fourthly, industry wastes are also an alternative which have been used in commercial farming.
“Improving the sector would not have any positive result without giving focus to the feeding system thus animal feeding has got proper attention, however, there are certain challenges,” Fikru stated amplifying the commitment of his ministry.
The dry season irrigation based harvest from mainly the wheat production that includes the low land will expand the feed security for not only the sector in general but also for pastoralists.
The first Ethiopian dairy bulls and cows’ directory that was stated as a milestone for the sector was also launched at the same event. In addition, the dairy animals’ catalogue application was also introduced.
Modeling the capital market
The government may follow the approach of the formation of Ethiopian Commodity Exchange (ECX) on the establishment process of the capital market. Interest is expressed by local and foreign investors to take share on Ethiopian Security Exchange while the transformed business model is expected to be an alternative financial source for the economy.
Chartered Institute for Securities and Investment (CISI), a London based firm, partnered with facilitators of the capital market formation to enhance capacity building on the new business platform.
Melesse Minale, the Capital Market Advisor at the National Bank of Ethiopia, told Capital that the government shall undertake a formation process by the financial support of other international partners.
“We are focused on advocacy concerning the opportunity of the upcoming capital market for potential investors and partners. The ratification of the proclamation may lead us to openly invite investors to be part of the new market,” he said.
So far the World Bank and Financial Sector Deepening Africa that is financed by the UK government are funding the process of the under formation process of the capital market.
Africa Development Bank and European Union have also contributed their support by hiring professionals.
“The World Bank is also supporting to the formation of the regulatory body, Capital Market Authority,” he said.
He told Capital that the government is working with regards to financing the initiative that shall be through donation or as investor.
Melesse said that the interest of local and international investors have already been seen with regards of investing in the capital market.
“It is still in early stages since the proclamation has not yet been ratified by the parliament but informally we have discussed with different players in the international arena including prominent ones in the sector. There is interest to be part of the new platform in different capacity either as an investor or service provider,” the Advisor said.
He said that as per the coming proclamation they will invest in the country.
The article 31 draft proclamation that was sent to parliament mid-January indicated that Ethiopian Security Exchange will be formed. The exchange will be formed as a share company by the government in partnership with the private sector which also includes foreign investors.
The same article sub article 2 said that the total ownership of the government and government owned entities shall not exceed 25 percent of the exchange’s capital.
“If there is insufficient interest from the private sector, the government’s ownership of the exchange can be increased to whatever amount is needed to establish the exchange,” sub article 3 three reads.
The fourth article further added that if there is no interest at all from the private sector, including from foreign investors, the exchange shall be established as a fully government owned public enterprise by regulation of the Council of Ministers.
When ECX was formed in 2008 with the capital of 250 million birr, the contribution of the first 100 private investors was only 50 million birr, while the balance was covered by a consortium of financing partners including UNDP, the World Bank, USAID, Canadian International Development Agency CIDA and the World Food Programme and is co-financed by the government.
Melesse hinted that the government may follow a similar approach to amass the required start up fund.
Under the explanation document for the proclamation, it had indicated that the intention of the government to take share at the company is only that the upcoming capital market is new for the country and that private inventors may not have eager to take share because of different reasons including clue about the business. Besides that, the involvement of the government as a shareholder is to boost the confidence of the private sector, which is expected to take the major share.
For the past one year massive capacity building programs was given for public offices and private sector experts with financial support of different stakeholders. CISI, which is one of the leading professional bodies for securities, investment, wealth and financial planning professionals, has been the major player on skill development for Ethiopians.
“Qualified certification training has been given for more than 100 individuals, while we have a plan to expand it for others that need significant amount of cost, which may be covered by partners,” he says, adding, “in the future, local training capacity will be built.”
Pay your dues, cautions MOR
Ministry of Revenue has warned private companies to properly collect cost sharing revenue.
Due to weak performance on the collection of higher education cost sharing tuition on time, the Ministry of Revenue has cautioned private companies to appropriately pay employees cost sharing tuition.
“The annual performance of revenue collected from cost sharing tuition has shown weak performance, which stems from students who are working at private institutions not paying their tuitions properly. Reasons for this unduly payment was either noted as lack of awareness, and or carelessness of the student,” stated the ministry.
Ethiopia developed the cost sharing plan to serve as an alternative source of supplementing revenue in a bid to open more opportunities and make students responsible citizens and customers.
However, as officials form the ministry have expressed the cost sharing revenue is declining which has affected the government’s activity, Cost-sharing scheme in Ethiopia was implemented in 2003 with the objectives of generating non-governmental revenue, expanding access, and improving equity and quality in higher education. Students under the scheme are expected to pay 15 percent of their tuition fee while the remaining 85 percent is sponsored by the government.
Students upon graduating under the scheme will start making payment within six months after graduation if earning income or within a minimum of one year after graduation in the form of graduate tax which is at least 10 percent of the monthly income. In the agreement, students are expected to pay all of their cost within a maximum of 15 years. Also if the student does not fully provide cost sharing documents, companies are expected to cut of 33 percent of their monthly income to the scheme.
As the ministry explains, unless the students start paying their employees cost sharing, the companies and also accountants will be punish or held accountable. “Accountants will be punished up to 2000 birr where as companies could face a penalty which might lead up to closure of the company,” the ministry emphasized.
Due to the decline of repayment rates last year, the ministry of higher education was planning to increase the cost sharing tuition fee from 15 percent to 30 percent in the current academic year, however due to the current situation in the country; the ministry did not follow through with the proposed increase.
The revenue from cost sharing is less attractive as the country spends a huge amount of its budget on education. However, the scheme is believed to be a more attractive, simple and manageable alternative in the Ethiopian higher education landscape. It is also an attempt to ensure equitable access to students of any background, as there is no need to stipulate income of parents to determine the repayment amount.
Government financing of education has been generous. It is similar to the amount spent on transport and other infrastructure. Public spending on education in Ethiopia has increased by 70 percent in real terms between 2003/04 and 2011/12. In this period, education accounted for roughly 20 percent of total government spending.
Calculating appropriate tuition fees and costs, giving every citizen tax identification number (TIN) and decentralization and strengthening the tax collection and information system have proved to be important for the successful implementation of cost sharing in Ethiopia.
Lack of awareness by private organization employers to deduct 10 percent from the gross salary and pay it back to the tax collecting ministry after a six month grace period and lack of central data system to trace where someone is working, and the low amount of job opportunities are some of the challenges the ministry has faced when it comes to collecting the educational revenue.
