April 2009 - After tightening the screws on the opposition ahead of the 2010 general election (ION 1256), Prime Minister Meles Zenawi now wants to bring to heel any private operators who do not apply his directives to the letter. The fact is there are dark clouds looming on the country’s economic horizon. Even if the government spokesman Bereket Simon is pleased that the Ethiopian banks were not affected by the subprime crisis or the Madoff scam, the country is not isolated from the world economic downturn. It is already starting to feel its first effects in the form of lower prices and reduced international demand for its two principal exports, coffee and flowers. Which is bad both for the country’s trading balance and for the shortage of foreign exchange.
Foreign exchange shortage. The Ethiopian ministers are too easily satisfied by the drop in the inflation rate, which is nevertheless high (the annualised rate in January 2009 of 38% is expected to fall to 20% by the end of the year). Their main concern is the shortage of foreign currency: the exchange reserves correspond to five weeks of imports of goods and services. This has already led the East African Bottling Share Company to suspend its production of Coca-Cola in mid-March because it could no longer import the raw materials. For its part, the French brewery Castel was able to escape the same fate only because it had sufficient stocks. A recent memo from the United Kingdom Ambassador Norman Ling estimated that the Ethiopian government was trying to raise the level of its fore ign currency reserves to two months of imports, “but foreign exchange will continue to remain in short supply for several months to come”. Particularly if private funds transfers and international aid start to stagnate. The Minister for Finance, Sofian Ahmed therefore went three weeks ago cap in hand to knock on the door of the acting resident representative of the African Development Bank (ADB) in Ethiopia, Peter Mwanokaiwe, to ask for a loan of $64 million to finance the import of food products.
Authoritarian measures. The Ethiopian government is taking radical, even authoritarian, fiscal and monetary decisions to try and stem the effects of the international recession. The 10% devaluation of the Birr against the US Dollar in January 2009, the first for two decades, could be followed by other measures in the coming months because the Ethiopian currency is still considered overvalued by between 10% and 20%.The government has cut its domestic borrowing and the National Bank of Ethiopia (NBE) is working at reducing the monetary mass in circulation. The revenue authority has embarked on a vast operation of tax adjustments to bring more money into the government coffers: the Italian firm Salini Construction would see m to have won first prize, having to pay an adjustment of 100 million Birrs (€ 6.5 million). Three months ago the executives of the Star Business Group and of Nile Insurance found themselves in the hot seat. Some of them ended up in prison, accused of corruption. Last month Meles Zenawi took half a dozen major coffee exporters to task. He accused them of delaying exports while waiting for the price to go up again. The Prime Minister decreed this practice “illegal” and revoked their licences. After that, the other operators decided to keep a low profile.
Sharing tasks. Meles Zenawi no longer tolerates Western calls to open the Ethiopian banking sector to foreign capital or to deregulate telecoms, currently a State monopoly. At the end of March he and several of his ministers pulled out at the last minute of a round table organised in Addis Ababa by Economist Conferences because they did not approve the text of one of the speakers. The event consequently had to be cancelled. The Ethiopian ministers are now so tense that these days they keep out of the way of the trade attachés of the Western embassies who ask them for meetings to discuss the local economic situation. While the Prime Minister is clamping down on the political arena and the private sector, his wife Azeb Mesfin is acting as a true businesswoman and has no qualms about intervening in favour of her friends (ION 1253). She has just obtained the post of number two in the Endowment Fund for the Rehabilitation of Tigray (EFFORT), a consortium of companies headed by top officials in the Tigray People’s Liberation Front (TPLF, hard core of the governing coalition).
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Several firms owned by the Saudi-Ethiopian magnate have had multiple setbacks in Addis Ababa and Debre Zeit.
The fire on a farm owned by his company Elfora Agro-Industries in the Oromia Regional State (ION 1257) was by no means the last of the setbacks the Saudi-Ethiopian magnate Mohamed Hussein Al-Amoudi has had to contend with. The region’s administration has ordered him to relocate the poultry farm owned by Elfora away from Debre Zeit. At the same time, the group’s abattoir and Metahara Meat Factory in Debre Zeit have been closed down.
Another Al Amoudi company has had problems In the capital. Midroc Construction has had several public sector construction contracts revoked and handed over to Turkish companies, because they had not been completed on time. The company therefore had to sack the employees working on these sites. But these workers, some of whom have more than ten years of service, filed official complaints because they had not received the severance pay they are entitled to under the law. They are now threatening to take Midroc to court!
Source: ION
