Ethiopia: a prosperous mindset for a prosperous journey

10/09/2020 Business, Ethiopia, Science



[ad_1]

After briefly speaking about the ups and downs we have faced as a nation over the past year, FDRE President Sahle-Work Zewde outlined the ways forward by opening parliament in a joint session of the House of Representatives and the House of Representatives. Federation on Monday.

His speech focused more on the successes the headline has achieved; in the donuts than in the holes. As the saying goes ‘denying the facts doesn’t make them go away’, we as a nation have a long, hard, collaborative effort to increase the size of the donut and reduce the size of the hole.

In the president’s speech, the main concerns were briefly mentioned. One of them is to curb the dire effects of inflation.

The inflation rate, particularly in consumable products, must be reduced for the improvement and continuity of the life of those classified in the minimum row. In this sense, the recent demonetization measure, which is believed to favor commercial banks and the government, may be one of the main tools to combat the rising rate of inflation.

Black money is one of the causes of demand inflation. People who got rich on ill-gotten money don’t hesitate to spend recklessly. The owners of black money could not spend their money as they wanted due to the restriction imposed on the circulation of old notes; they have to change the notes before doing so.

It seems that these people are not exchanging their money as expected. Some experts argue that the government has no interest in having this ill-gotten money exchanged with the new bills. What happens if the old bills don’t go back to the banks? Well, the government is likely to possess the amount of black money that is unlikely to go back to the banks.

Almost fifteen days have passed since the currency exchange began, and yet less than 15% of the expected banknotes were returned to the banks. This indicates that those who have accumulated their ill-gotten money were unable to exchange their bills.

If they cannot be presented within the given time period, the government will definitely print the uncollected amount with the new bills and then finance it. If so, our fight against inflation could easily be won in our favor, since the government can control the general money supply and the currency in circulation.

It would be necessary to apply effective monetary and fiscal policies to combat inflation and reduce it to a single digit rate. In short, the money supply in the formal economy would be updated and controlled by the central bank.

Investopedia defines ‘Money supply’ as all currency and other liquid instruments (such as bank checks) in a country’s economy on the measurement date. The money supply roughly includes cash and deposits that can be used almost as easily as cash. The money supply (MS) is directly related to the interest rate, investment, employment and inflation.

When the money supply increases, the availability of cash in the hands of commercial banks would increase. This in turn lowers the interest rate which then attracts investment.

Investment, on the other hand, creates more job and employment opportunities. However, more than 113 billion Birr out of bank circulation has been negatively disrupting this economy. The reinjection of this huge amount into the banking system will definitely stabilize the financial industry and keep business running in a healthy way.

Fiscal policy on the other hand means the government’s budget policy. Since public spending and taxes are the two main instruments of a fiscal policy, reducing spending and increasing the level of the tax would lower the inflation rate. However, doing so would negatively affect the level of employment and investment activities. Therefore, a golden mean must be devised to prevent such negative effects from being brought to our economy.

Of course, one cannot be achieved without the expense of the other, but focusing on the production of consumable products (on the product side) can liquidate inflation by absorbing the increase in the money supply.

On the contrary, if the investments are directed only to the development of the infrastructure and construction industry, there would certainly be an increase in the prices of consumable products. In short, to keep the money market and the product market in balance, priority must be given to a basket of goods and products that the population demands on a daily basis.

Commercial banks are among the most favored institutions with the proceeds of demonetization. They are collecting a large amount of unexpected cash. They need to manage their finances effectively and play an important role in creating new economies.

Banks need to be deeply involved in economic development by easing borrowing requirements and also engage in supporting newly developed business ideas in a way that fuels the efforts of startups and entrepreneurs. Investments have to skyrocket for our GDP and employment levels.

The other important macroeconomic indicator that we must work on is our balance of payments (BoP). The balance of payments in simple terms is the monetary balance between the value of imports and the value of exports. Our BoP shows a negative balance for so many years since our participation in international trade. The current balance of payments has a deficit of more than 15 billion dollars. Our value of exports is only 3 billion dollars, but the value of imports exceeds 18 billion dollars.

In this fiscal year, the government is determined to reduce this wide gap by increasing exports and substituting imports with local products. Take the import of wheat, for example. Importing wheat costs us almost a quarter of our export value. Of the 3 billion dollars of our export value, the import of wheat for domestic consumption is around one billion.

Government activities in mass participation in mechanized wheat production farms, especially in the Afar region, are very promising. It would be a great achievement if we could substitute so much spending for a national production.

Well, in addition to the supply of land and labor, high-yield varieties and other agricultural inputs such as fertilizers must be provided to improve the performance of the agricultural sector, as the President mentioned.

Our success in this would also result in a change in the life of the population of the region, from a pastoral life to a sedentary one, in addition to increasing the personal income of farmers and the improvement of other needs, such as the provision of education and Medical centers.

According to the agricultural sector and crop production in particular, smallholder agricultural practices (which is dominant in Ethiopia), I want to borrow a great idea from Dr. Seid Nuru (director of the economic development office of Amhara ). I heard him say that “the traditional farming system that uses oxen is not economical.

Oxen that are used for agriculture are on duty for only two weeks a year, yet the owner has to feed them all year round on a daily basis. The cost of animal feed to be borne by the farmer is very high. “Dr. Seid continued:” So instead of taking on this huge feed cost, we have to think about producing simple manual plow machines and providing to farmers sales on credit.

Once we can produce a prototype with the help of experts, the millions of TVET graduates would duplicate the prototype. By doing so, we can achieve three main benefits: a) farmers would not have had to pay for the costs of feeding the oxen and veterinary expenses b) employment opportunities would be created for millions of TVET graduates c) if the farmer could access the Simple machine plow, would not have to stay with the oxen.

He would rather sell it, and this in turn would increase the supply of meat and lower prices for consumers. The government’s tax collection would also increase along with each activity. Everyone wins ”. I urge policy makers to consider this proposal and implement it as soon as possible.

The livestock subsector should also receive the same attention as agricultural production. It is very unfortunate to witness the higher prices of animal products (such as meat) in a nation where the number of livestock is in the upper range of the African continent. The livestock market must be freed from the intervention of rent-seeking intermediaries who are artificially creating a distortion in the market.