The real (inflation-adjusted) GDP growth rate of Ethiopia from 1982 through 2008 is shown below. As you can see from the graph, Derg’s Ethiopia was also “registering” positive GDP growth while the country was waging bloody internal wars, was in the mist of biblical famines and was under an extreme form of socialist system.
Derg’s best year for GDP growth was 1987 when it “achieved” a GDP growth rate of 13.9% – a record for the period shown below (from 1982 through 2008). Now, everyone knows that “1987? was hard time in Ethiopia since it was immediately after the famine and internal wars had reached their peaks. Read here about the state of Ethiopia’s economy in 1987. This calls for a real understanding of what a GDP (Gross Domestic Product) is so that the “GDP” propaganda being waged by the Zenawi government can be better exposed as a fallacy designed to buy time for Woyane to exploit Oromia and the rest of Ethiopia.
Zenawi is presiding over a massive transfer of wealth from the state/people into the hands of the few, well-connected members of the oligarchy. While doing so, he flashes “GDP” numbers to hoodwink the public into believing the theft is an “economic growth.”
In simple terms, if a country is a “commodity” and a price is attached to it, then that total worth of the country is its GDP (Gross Domestic Product). The total market value of the products and services produced by the country’s economy come from private consumptions, gross investments, government spending and from total net exports (i.e. exports – imports).
GDP = private consumption + gross investment + government spending + (exports ? imports)
Examples of Economies
– The United States of America is a consumer-based economy, meaning that the “private consumption” in the GDP formula takes up a significant portion (some estimates are 70%) of U.S.A.’s GDP.
– Great examples of export-driven economies are Japan, China and Germany. These countries rely on exporting products and services in order to expand their economies (in the GDP formula, the “total net exports” makes up a significant portion of these countries’ GDP).
– Now, let’s come to Zenawi’s Ethiopia. What part of the GDP formula is driving Ethiopia’s GDP increase? According to the Heritage Foundation’s 2010 Index of Economic Freedom, the expansion of Ethiopia’s economy is as a result of exports of agricultural products, such as flowers. The government has also rushed into spending sprees (thus, adding to GDP) to construct dams and other structures without adequate feasibility studies (a case in point is the collapse of the main tunnel of Gilgel Gibe-II dam merely ten days after its opening).
The Land-Grabbing Will Increase GDP in 2010/11 While Enslaving People
For most of the late 2000’s, a significant portion of Ethiopia’s GDP growth came from environmentally unfriendly projects, such as flower farms and gold mines, that have increased the standard of living of local people by 0%. In other words, while companies involved in flower farming and gold mining were racking up millions, the local people have no health clinics, no schools and other basic facilities to show for the so-called “GDP growth.” Yes, the increase in exports has led to the GDP growth; however, the resources of the people were unfairly exploited by the flower farmers and gold miners, and the people were left to rely on relief aid from donor governments. The picture shows the people of Odo Shakiso lining up to receive food aid (more pictures can be found here).
The year 2009 saw unprecedented cases of land grabbing in Ethiopia by foreign governments. Zenawi is banking on these neo-colonized localities to further increase his GDP. Remember that the main objective of the neo-colonialists is to export the grains harvested in Ethiopia. Exporting the grains settles well with Zenawi’s Revolutionary Democracy economic policy. How will this affect GDP? Positively.
To stimulate the land grabbing, Zenawi offered a hectare of prime farmland for $10 (sometimes, less than that or even rent-free). In other words, the government is not making money (unless there’s a side deal) when the land is sold, but the sale is closed for Zenawi when he claims victory for increasing the GDP when the grains are “exported” and when he earns much needed foreign currency.
In summary, while grains are exported from the neo-colonized localities in Ethiopia, such as farms in the States of Oromia, Gambella and Benishangul-Gumuz, the GDP goes up and Zenawi claims victory for increasing the GDP. What will happen to the people in Oromia, Gambella and Benishangul-Gumuz where these megafarms are said to be located? They will become slaves sweating for a dime a day in their own country while their “own” government claims to have increased the economy by their enslavement and by giving away their land! In addition, millions of people in different corners of the country will die of starvation while foreign governments ship out grains harvested in Ethiopia.
Ethiopia has a huge trade deficit for an economy that’s claiming to be increasing in double digits. Trade deficit is an excess of imports over exports. That means, Ethiopia imports way too much goods and services because it is unable to produce them itself. GDP formula: when a country imports goods and services, GDP goes down.
Ethiopia’s trade deficit with the world economies has reached $4.7-billion in 2008/9, according to a report by Addis Fortune.
Ethiopia experienced a sharp decline in imports in 2009 (see graph below), which was a positive direction for GDP. Ethiopia’s decline in imports, however, was not because it’s producing more of its goods and services, instead it was as a result of shortage of foreign exchange for imports that was brought about by the decline of exports in Q4 2008.
The Zenawi government resorted to controlling foreign exchange by imposing regulations on imports when foreign exchange dried up as a result of the global financial crisis impacting Ethiopia’s export markets. Even during this regulation, Woyane-owned companies were put on no restrictions to exchange Birr to a foreign currency to import goods. Yes, the GDP increased because of a decline of imports, but non-Woyane companies were made to shrink while Woyane-affiliated companies were growing during the foreign currency control regime.
Here’s a statement from the 2009 National Trade Estimate Report on Foreign Trade Barriers (NTE), published by the United States Trade Representative (USTR):
While larger firms, state enterprises, and enterprises owned by the ruling party do not typically face major problems obtaining foreign exchange, less well connected importers, particularly smaller, new-to-market firms, increasingly face burdensome delays in arranging trade related payments.
As mentioned above, replacing imported goods with local alternatives helps increase the GDP. Let’s take the case of cement. Close to 50% of cement used to be imported into Ethiopia until recently when the Ministry of Works and Urban Development put a stop on the imports. The question is where are the local alternatives coming from? The answer is clear: Mesebo, one of the several companies owned by the ruling party (Woyane). Even though the Mesebo Cement Factory is located in Mekelle, Tigray, hundreds of Chinese laborers have immigrated to work at the factory (read the recent news about their strike). The major observation here is the local alternatives to imports are being produced by the ruling party companies (therefore, killing two birds with one stone: enriching themselves and claiming to have “grown” the GDP through foregoing imports).
Inefficiencies Increase GDP
Do you recall the “Bridge to Nowhere” that was to be constructed in Alaska, U.S.A.? An Alaskan Senator managed to acquire federal government money for his home state so a bridge could be constructed to connect an airstrip on an island to a small town at a cost of $223 million.
Guess what? If that money was spent to build the “bridge to nowhere” for an island with population 50, then the GDP would have increased by that much. Why? … because the “government spending” portion of the GDP formula goes up. Wait! If there was a mishap during the construction of the bridge and the government footed the bill, then GDP goes up!
Now, going back to Ethiopia. Tekeze Dam is equivalent to the “bridge to nowhere,” and Zenawi has already claimed increasing the GDP from this project. Tekeze Dam was dubbed the “dam with no water.” For several years, it sat idle since there was no water to fill the dam. An “hydro”-electric dam with no water is more than equivalent to a “bridge to nowhere” – both wasteful spending, but jacking up the GDP figure anyways.
During the construction of the Tekeze Dam (April 2008), “a massive landslide forced developers to spend an additional $42 million on retaining walls to keep the slopes from eroding.” You guessed it; the $42-million extra cost spent by the government has increased the GDP in 2008 by that much. That $42-million bill was paid to Chinese contractors who would go and spend Ethiopia’s taxpayers’ money in China.
Another aspect of the Tekeze Dam is the craze about exporting energy. That tells you right there and then, the Amhara and Tigray local people who live right next to the dam will benefit nothing from the dam. Export the energy, increase GDP — clap, clap to Zenawi’s Revolutionary Democracy; however, the local people see no penny of that export earning: no health clinics, no schools, etc. Pretty much what has happened to coffee farmers for more than 5 decades – still in destitute living conditions after producing coffee worth billions of dollars over the years.
GDP Growth IS NOT INCREASE IN THE STANDARD OF LIVING
GDP per capita (i.e. the GDP divided by the total population) growth does not mean an increase in the standard of living of the people. As illustrated above with specific cases, unfair farming and mining practices, heavy regulation of non-Woyane companies, and wasteful spending – all contribute to an increase in GDP. While Zenawi’s Revolutionary Democracy policy continues to enrich the few, well-connected members of the oligarchy, it has resulted in zero, naught, zilch, “bado” increase in the standard of living of the poor – which makes up 99% of the population.
The United Nations Development Program (UNDP) also agrees that GDP size or GDP per capita do not tell anything about how the majority of the people are living (unemployment, inflation, etc). Therefore, UNDP has its own index called HDI (Human Development Index) instead of GDP per capita. If you have read the HDI report for Ethiopia in 2009, there has been no improvement in the standard of living (read the report here); in other words, there had not been no people-centered economic development in Ethiopia.
Will Woyane Change?
The only way Zenawi’s Revolutionary Democracy becomes anything other than the grand “exploitation” policy it is now is when it benefits the majority of the people. However, like South Africa’s Apartheid was not designed to benefit the majority; Zenawi’s Revolutionary Democracy is not inherently designed for the majority, but for the few, the OLIGARCHY.
The Indian Noble-Prize winning economist, Amartya Sen, postulates:
“Shortfalls in food supply do not cause widespread deaths in a democracy because vote-seeking politicians will undertake relief efforts; but even modest food shortfalls can create deadly famines in authoritarian societies.”
That means, a non-democratic government can not bring any increase in the standard of living of the people since the officials of the non-democratic government are not accountable to the people. People do not have the power to vote officials out of office when bad and misguided policies (such as Zenawi’s Revolutionary Democracy) are being implemented by the government. Therefore, the government lacks a feedback loop – from the people about how the government is doing. That is what’s apparent in Ethiopia.
What Will Be Put on the Auction Block to Increase Next Year’s GDP?
The most daunting question is what will be put on the auction block to increase Zenawi’s GDP number?
Last year, it was the farmland, taken from the people in Oromia, Gambella and Benishangul-Gumuz and given to neo-colonialists, that would be partly credited for increasing 2010/11 GDP. What’s next?
– More farmland grabbing by foreign governments? By extending the land giveaway over several years, Zenawi will claim “GDP growth” for each of those years …
– Will the rift valley lakes be exploited by Zenawi to increase his GDP number?
– What part of the GDP formula will they tweak next year – at what cost to people, the environment and future generations?
Ethiopia’s Economy is Fragile (or Bubble?)
The Heritage Foundation’s 2010 Index of Economic Freedom has remarked the following about Ethiopia:
Ethiopia has achieved considerable economic growth over the past five years, driven mainly by exports of agricultural products. The double-digit growth rate of over 10 percent, however, is fragile due to the lack of economic dynamism, and the economy remains highly vulnerable to external shocks. Progress toward greater economic freedom has been uneven and sluggish.
The lack of economic dynamism is because Zenawi is only tweaking (cooking) a few aspects of the GDP formula since control over the economy by the oligarchy is of prime importance. The fragility of the economy comes from the fact that the GDP expansion relies on exploiting natural resources (which will run out sooner or later; the gold mines will dry up at the end of the day – but at what cost?). Wikipedia has a great example on this case.