>
>
> http://www.opride.com/oromsis/news/3762-the-myth-of-ethiopia-s-crony-capitalism-and-economic-miracle
>
Crony capitalism and the myth behind Ethiopia's economic miracle
July 15, 2014
Published in Horn of Africa News
(OPride) - Over the last decade, Ethiopia has been hailed as the fastest
growing non-oil economies in Africa, maintaining a double-digit annual
economic growth rate. The Ethiopian government says the country will join
the middle-income bracket by 2025.
Despite this, however, as indicated by a recent Oxford University report,
some 90 percent of Ethiopians still live in poverty, second only after
Niger from 104 countries measured by the Oxford Multidimensional Poverty
Index. The most recent data shows an estimated 71.1 percent of Ethiopia's
population lives in severe poverty.
This is baffling: how can such conflicting claims be made about the same
country? The main source of this inconsistent story is the existence of
crony businesses and the government's inflated growth figures. While
several multinational corporations are now eyeing Ethiopia's cheap labor
market, two main crony conglomerates dominate the country's economy.
Meet EFFORT, TPLF's business empire
The seeds of Ethiopia's economic mismanagement were sown at the very
outset. We are familiar with rich people organizing themselves, entering
politics and protecting their group interests. But something that defies
our knowledge of interactions between politics and business happened in
1991 when the current regime took power.
Ethiopia's ruling party, the EPRDF, came to power by ousting the communist
regime in a dramatic coup. A handful of extremely poor people organized
themselves exceptionally well that they quickly took control of the
country's entire political and military machinery.
In a way, this is analogous to a gang of thieves becoming brutally
efficient at organizing themselves to the extent of forming a government.
Once in power, the ruling Tigrean elites expropriated properties from other
businesses, looted national assets and began creating wealth exclusively
for themselves.
This plan first manifested itself in the form of party affiliated business
conglomerate known as the Endowment Fund for Rehabilitation of Tigray
(EFFORT). EFFORT has its origin in the relief and rehabilitation arm of the
Tigrean People Liberation Front (TPLF) and the country's infamous 1984
famine.
As reported by BBC's Martin Plaut and others, the TPLF financed its
guerilla warfare against the Dergue in part by converting aid money into
weapons and cash. That was not all. On their way to Addis Ababa from their
bases in Tigray, the TPLF confiscated any liquid or easily moveable assets
they could lay their hands on. For instance, a substantial amount of cash
was amassed by breaking into safe deposits of banks all over Ethiopia.
Those funds were kept in EFFORT's bank accounts. TPLF leaders vowed to use
the loot to rehabilitate and reconstruct Tigray, which they insisted was
disproportionately affected by the struggle to "free Ethiopia."
Intoxicated by its military victory, the TPLF then turned to building a
business empire. EFFORT epitomizes that unholy marriage between business
and politics in a way not seen before in Ethiopian history. According to a
research by Sarah Vaughan and Mesfin Gebremichael, EFFORT, which is led by
senior TPLF officials, currently owns 16 companies across various sectors
of the economy.
This figure grossly understates the number of EPRDF affiliated companies.
For example, the above list does not include the real money-spinners that
EFFORT owns: Wegagen Bank, Africa Insurance, Mega Publishing, Walta
Information Center and the Fana Broadcasting Corporate. The number of
companies under EFFORT is estimated to be more than 66 business entities.
Suffice to say, EFFORT controls the commanding heights of the Ethiopian
economy.
While it is no secret that EFFORT is owned by and run exclusively to
benefit ethnic Tigrean elites, it is a misnomer to still retain the phrase
"rehabilitation of Tigray." Perhaps it should instead be renamed as the
Endowment Fund for Rendering Tigrean Supremacy (EFFORTS).
MIDROC Ethiopia, EPRDF's joker card
In Ethiopia's weak domestic private environment, EFFORT is an exception to
the rule. Similarly, while Ethiopia suffers from lack of foreign direct
investment, MIDROC Ethiopia enjoys unparalleled access to Ethiopia's key
economic sectors. Owned by Ethiopian-born Saudi business tycoon, Sheik
Mohammed Al Amoudi, MIDROC has been used by the EPRDF as a joker card in a
mutually advantageous ways. The Sheik was given a privilege no less than
the status of a domestic private investor but the EPRDF can also count it
as a foreign investor. For instance, the United Nations Conference on Trade
and Development reported that about 60 per cent of the overall FDI approved
in Ethiopia was related to MIDROC.
MIDROC stands for Mohammed International DevelopmentResearch and
Organization Companies. Despite reference to development and research in
its name, however, there is no real relationship between what the crony
business says and what it actually does. Ironically, as with EFFORT, MIDROC
Ethiopia also owns 16 companies. But this too is a gross underestimation
given the vast sphere of influence and wealth MIDROC commands in that
country.
Like EFFORT, Al-Amoudi's future was also sealed long before the TPLF took
power. He literally entered Addis Ababa with the EPRDF army, fixing his
eyes firmly on Oromia's natural resources. Shortly after the TPLF took the
capital, Al-Amoudi allegedly donated a huge sum of money to the Oromo
People's Democratic Organization.
Why the rush?
The calculative Sheik sensed an eminent threat to his business interests
from the Oromo Liberation Front (OLF), a groups that was also a partner in
the transitional government at the time. In return for its "donation,"
MIDROC acquired massive lands in Oromia - gold mines, extensive state farms
and other agricultural lands. In a recent article entitled, "The man who
stole the Nile," journalist Frederick Kaufman aptly described Al Amoudi's
role in the ongoing land grab in Ethiopia as follows:
In this precarious world-historic moment, food has become the most valuable
asset of them all -- and a billionaire from Ethiopia named Mohammed Hussein
Al Amoudi is getting his hands on as much of it as possible, flying it over
the heads of his starving countrymen, and selling the treasure to Saudi
Arabia. Last year, Al Amoudi, whom most Ethiopians call the Sheikh,
exported a million tons of rice, about seventy pounds for every Saudi
citizen. The scene of the great grain robbery was Gambella, a bog the size
of Belgium in Ethiopia's southwest whose rivers feed the Nile.
It is little wonder then that Al-Amoudi said, "I lost my right hand," when
Ethiopia's strongman of two decades Meles Zenawi died in 2012. If EFFORT is
a curse to the Ethiopian economy, MIRDOC is EPRDF's poisoned drink given to
the Ethiopian people.
Mutual Distrust
The marriage between politics and business has had damaging effects on the
country's economy. One of its most far-reaching consequences is the total
breakdown of trust between the EPRDF and the Ethiopian people. In economic
policy, trust between private investors and the government is paramount.
The deficit of trust is one of the hallmarks of Ethiopia's much-touted
development.
After all youth unemployment hovers around 50 percent. Every year, hundreds
of young Ethiopians risk their lives trying to reach Europe or the Middle
East, often walking across the Sahara desert or paying smugglers to cross
the Red Sea or Indian Ocean aboard crowded boats. The desperation is a
result of the lack of confidence in the government's ability to provide
them with the kind of future they were promised.
Ironically, aside from their crony businesses, the EPRDF does not have any
confidence in Ethiopian entrepreneurs either. It is this mutual distrust
that culminated in the prevalence of an extremely hostile environment for
domestic private investment.
This is not a speculative claim but a well-documented fact. The World
Bank's annual survey, which measures the ease with which private investors
can do business, ranks Ethiopia near the bottom. In the 2014 survey,
Ethiopia came in 166th out of 189 countries in terms of difficulties in
starting new business or trading across borders. Moreover, year on year
comparison shows that the investment climate in Ethiopia is actually
getting worse, sliding down the ranking both in the ease of doing business
and trading across borders.
Farms but no firms
The TPLF cronies do not engage in competitive business according to market
rules but act as predators bent on killing existing and emerging businesses
owned by non-Tigrean nationals. However, the ruling party, which largely
maintains its grip on power using bilateral and multilateral aid, is
required to report its economic progress to donors (the regime does not
care about accountability to the people). In this regard, the lack of
foreign direct investment (FDI) has been a thorn in the throat of the
EPRDF. Donors have repeatedly questioned and pressured the EPRDF to attract
more FDI. The inflow of FDI is often seen as a good indicator of the
confidence in countries stability and sound governance. Despite widespread
belief in the West, the EPRDF regime cannot deliver on these two fronts.
To cover up these blind spots, the regime has persuaded a handful of
foreigners to invest in Ethiopia, but until recently few investors
considered any serious manufacturing venture in the country. Besides,
considered "cash cows" for the government, banks, the Ethiopian Airlines,
telecommunication and energy sectors remain under exclusive monopoly of the
state. They provide almost free service to the crony businesses. Any firm
looking to invest in manufacturing and financial sectors have to overcome
insurmountable bureaucratic red tape and other barriers.
One sector that stands as exception to this rule is agriculture. Since the
2008 financial crisis and the rise in the global price of food, the regime
opened the door widely for foreigners who wanted to acquire large-scale
farms. These farms do not hurt their crony businesses but they do harm poor
subsistence farmers. Vast tracts of lands have been sold to foreigners at
ridiculously cheap prices, often displacing locals and their way of life.
Contrary to the government rhetoric, the motivation for opening up the
agricultural sector has nothing to do with economic growth but everything
to do with politics - to silence critics, particularly in the donor
community who persistently question EPRDF's credibility in attracting FDI.
In essence, hundreds of thousands of poor farmers were evicted to make way
for flower growers and shore up the government's image abroad. This tactic
seems to be working so far. Earlier this year, Ethiopia received its first
credit rating from Moody's Investors Service. In the last few years, in
part due to rising labor costs in China and East Asia, several
manufacturers have relocated to Ethiopia.
Addis' construction boom as a smokescreen
Crony businesses and flower growers may have created some heat but
certainly no light in Ethiopian economy. EFFORT and MIDROC were in action
for much of the 1990s and early 2000s but GDP growth was not satisfactory
during that time. In fact, since other private businesses were in dismal
conditions (and hence domestic market size is very limited), even the crony
businesses encountered challenges in getting new business deals.
The setbacks in political front during the 2005 election shifted EPRDF's
strategies to economic front to urgently register some noticeable growth.
This partly explains the motives behind the ongoing construction rush in
and around Addis Ababa. In several rounds of interviews on ESAT TV, former
Minister d'etat of Communications Affairs, Ermias Legesse, provided
interesting accounts of cronyism surrounding Addis' explosive growth and
its tragic consequences for Oromo farmers.
It is important to understand the types of construction that is taking
place around or near Addis. First, private property developments by crony
estate agents mushroomed overnight. A lion's share of land expropriated
from Oromo farmers were allocated to these regime affiliates through
dishonest bids. Luxury houses are built on such sites and sold at prices no
average Ethiopian could afford, except maybe those in the diaspora. The
latter group is being targeted lately due to shortages of hard currencies.
Second, EPRDF politicians and high ranking military officers own
multi-storey office buildings, particularly aimed at renting to NGOs and
residential villas for foreign diplomats who can afford to pay a few
thousand dollars per month. It is a known fact that the monthly salary cap
for Ethiopian civil servants is around 6000 birr (about $300). As such,
that these individuals could invest in such expensive properties
underscores the extent of the daylight robbery that is taking place in
Ethiopia.
Third, the government was engaged in massive public housing construction
but under extremely chaotic circumstances. The condominium rush in Addis is
akin to the Dergue regime's villagization schemes in rural Ethiopia.
Families are uprooted from their homes without any due consideration for
their social and economic well-being.
Most households that once occupied the demolished homes in Addis Ababa's
shantytowns made a living through informal home businesses such as brewing
local drinks and preparing and selling food at prices affordable to the
poor. It was clear that the condominiums were not suitable for them to
continue doing such businesses. The construction of the public houses was
financed by soft loans from various donor agencies to be sold to target
households at affordable prices. However, the government often priced them
at the going market rates for condos.
As a result, the poor households simply rented out the properties to those
who could afford, while struggling to find affordable houses for
themselves. Solving the public housing crisis was never the government's
intention in the first place, as they were only interested in creating
business opportunities for their crony construction companies.
Fourth, roads and railway networks are by far the most important
large-scale public sector construction projects taking place in Addis.
There is no doubt that Addis Ababa's crowded roads, equally shared by
humans, animals and cars, need revamping. But, what is happening in the
name of building roads and railways simply defies belief. First, the sheer
scale and magnitude as well as the obsession with construction makes the
whole undertaking look suspicious. Every time I travelled to Addis, I
witness the same roads being constructed and then dug up to be
reconstructed over and over again.
The ulterior motive behind these projects is nothing more than expanding
TPLF's business empire and benefit crony allies. Having exhausted
opportunities within the existing perimeter of Addis, the so-called master
plan had to be crafted to enlarge the size of "the construction site" by a
factor of 20 to ensure that the cronies will stay in business in the
foreseeable future. In effect, the large-scale construction projects are
being used to siphon off public funds. And there seems to be no priority or
accountability in the whole process from the project inception, planning to
implementation.
Lies and damn lies
The construction boom in Addis serves as a two edged sward. On the one
hand, the funds generated from selling Oromo lands to private property
developers adds to the ever-expanding business empire of Tigrean political
and military elites. On the other hand, the appearances of several
high-rise buildings and complex road networks give the impression that
Ethiopia is witnessing an economic boom. The target audience for the latter
scenario is foreign journalists and the diplomatic community in Addis
Ababa, some of whom are so gullible that they fall in love with ERDF's
economic "miracle" from the first aerial view even before landing at the
Bole airport.
The fact remains however: no such economic miracle is actually happening in
Ethiopia. A pile of concrete slabs cannot transform the economy in any
meaningful way. After all, buildings and roads are only intermediaries for
doing other businesses. For instance, it is not enough to build highways
and rural roads - a proportionate effort is required to enhance production
of goods and services to move them on the newly built roads in such a way
that the roads will get utilized and investments made on them get
recovered. Otherwise, the roads and buildings can deteriorate without
giving any service, and hence more public money would soon be required to
maintain them. This is exactly what is happening in Ethiopia.
Meanwhile, the EPRDF has been engaged in a frantic effort to generate lies
and damn lies to fill the gap between the rhetoric and the reality of
Ethiopia's economy. The government-controlled media has been used for
extensive propaganda campaign to create a "positive image" in the eyes of
ordinary citizens. They literally compel viewers or listeners to see or
feel things that do not exist on the ground. The Ethiopian television zooms
onto any spot of land with a colony of green grass or lush crop fields to
"prove" the kinds of wonders the government is engineering.
Barring rain failures, much of Ethiopia's lush-green countryside has a
decent climate for agriculture. But the EPRDF regime tries to convince the
public that anything positive that occurs in the Ethiopia is because of its
economic policies. But, as evidenced in ongoing multifaceted grievances
around the country, the government is fooling no one else but itself (and
perhaps a few gullible individuals in the diplomatic community).
Its lies also come in the form of dubious economic statistics, which are
generated in such a way that EPRDF could report double-digit economic
growth year after year. The story of the double digit economic growth rate
in Ethiopia has been such that a lie told hundreds of times, no matter how
shambolic the numbers are, is becoming part of the western vernacular.
Donors often point to the abundance of high-rise buildings and impressive
road networks in Addis Ababa in regime's defense.
In a brief conversation, it is not possible to take such casual observers
through details of the kind I have attempted to narrate in the preceding
paragraphs. And, unfortunately for millions of Ethiopia's poor, in the
short run the government's lies and crony capitalism may continue to ravage
the country's economy until it begins to combust from within.
*The writer, J. Bonsa, is a researcher-based in Asia. Photo courtesy of
Addis Food Not Bombs - Ethiopia.
Received on Wed Jul 16 2014 - 09:28:15 EDT