DEMOCRACY, COMMERCE and RESILIENCE

Capital: Since CIPE is working across Ethiopia to promote market-oriented economic reform and participatory dialogue on economic policy, how would you best define the overall status of Ethiopia?

Hailemelekot Asfaw: Ethiopia has faced many difficulties during the past five years alone and continues to do so. Some of these challenging situations are natural, which we cannot control, and some of them are man-made. Natural challenges include droughts, floods, and locust invasions, while man-made challenges include political instability, ethnic conflicts, and economic struggles.

This natural disaster combining with man-made challenges is having a significant impact on our country. For instance, Ethiopia is one of the most affected countries due to climate change. We have been affected by the drought. Usually, drought has been happening in the northern part of the country, but in recent times it is happening in all parts of the country. An exacerbation to the drought has led to famine, which has resulted in both humans and animals to die.

Likewise in the past five years, high locust invasions have occurred across the country, which may have played a role in food item inflation as there would not be enough production at the national level.

There is also political instability, which is of course man-made and has resulted in conflicts in different parts of the country and has killed lots of people and destroyed citizens property, including the recent and most disastrous war that occurred in the northern part of the country, mainly in Tigray, which killed hundreds of thousands of people and dragged down the whole economy. The political instability has also led to a large number of people being displaced from their homes, creating a humanitarian crisis.

In all of these challenges, the ones who sacrifice or pay are we, the citizens of Ethiopia, and especially the private sector too.

Following the peace deal between the government and the TPLF on November 20, 2022, we are watching positive results, such as the fact that somehow now the number of deaths due to the war has decreased to the minimum, we are not hearing gunshots; however, it is still not enough. We have to think of ways to make this peace deal durable. And these need a lot of effort, including minimizing things that can result in conflict, including resources, opportunities, and so on. We have to stop conflicts and work on post conflict rehabilitation. This is not an obligation left to one side and needs the participation of everybody.

Capital: How is CIPE working to support the country with regards to coping with these challenging situations?

Hailemelekot Asfaw: At CIPE, in collaboration with the Ethiopian Economic Association and the Forum for Social Studies, we are designing programmes for postconflict economic recovery and regional integration. We have done deep research in the Amhara, Afar, Oromia, and Somali regions; due to the war, we couldn’t include the Tigray region. We have been engaging with the private sector in these regions, regional administrations, and chamber associations.

We have found a lot of input and findings from these four regions; we want them to be converted into action. Some of these findings concern policy issues. For these, we are planning to engage with different stakeholders, including different government offices and the private sector too.

Capital: What are the findings and recommendations of the researches you have done at CIPE?

Hailemelekot Asfaw: From what we have gathered thus far, we have raised five vital points. The first is rebuilding and rehabilitation especially in areas that are affected by the war or conflicts. Due to the conflicts different parts of the country have led to extensive damage to public infrastructures and private business properties including roads, bridges banks and electricity networks. Rebuilding and repairing infrastructure in conflict hotspots will enable the resumption of trade and other economic activities. For this it is needed to allocation of necessary budget for the construction could increase the economic return from businesses located in conflict affected areas by stimulating trade. Government should allow cities that experience high levels of destruction on their properties to use taxes collected locally for rebuilding purposes. Give full or partial debt relief to businesses that lost their properties due to conflict depending on the level of the damage they sustained. Give temporary income tax relief for business operating in the war ton areas. And also give priority access to foreign exchange to businesses so that they can purchase equipment and materials needed for reconstruction.

The second finding is on access to finance. There is great need to make available allocation of special budget especially to support the private sector starting from the small to the biggest businesses affected by the conflict. Most of the financial institutions have started giving service in the war affected areas which has been interrupted for more than a year, yet still there are some issues related specially with lack of hard currency to which small businesses have struggled to recover and resume operation after the cessation of hostility. These challenges have to be addressed as soon as possible. Government in collaboration with development partners should support SMES and to this end we recommended for the implementation of the movable property security rights proclamation no. 1147/2019 which will help SMES to access credits with movable assets. Thus it is vital to establish a revolving fund for SMES on the conflict affected areas as well as provision of credit with lower interest rates. Similarly we can also direct the diaspora trust fund towards business in conflict affected areas. The third priority is to restore and strength business relations within regions. Business relations between regions have been down due to the conflicts but now after the peace deal, business relations is resuming slowly but more needs to be done to bring the relations to their prewar level as this is a pathway to sustainable peace and development . Moreover it is crucial for us to strengthen law enforcement in the areas so that businesses can work without fear.

Promotion of investment in war affected areas to expand capital inflow and rebuild the economy is also very integral to the process of bouncing back. We need to implement certain policy oriented activities such as to strength the rule of law and security, organize regular inter regional investment forums to establish link between regions, and also to provide special investment incentives to attract investors to conflict affected areas which will increase investment in the areas.

The last priority that we strongly suggest is the promotion of inclusive public private dialogue, Ethiopia has a significant experience in the field of public private dialogue; however most of them lack inclusivity and consistency to achieve sustainable change. It is of absolute paramount importance to ensure that regional business community is well represented during national public private dialogue so that issues that can be reasons for conflict can be addressed. What the pandemic has shown us is also that it is possible to make public private events virtual and hybrid.

These are just for a start and are still of course on the idea stage but we are working to trickle them down to feasible actions.

Capital: CIPE has been working on the interregional business agenda between Ethiopia and neighboring countries. What is the status quo of the matter?

Hailemelekot Asfaw: So the idea of working on regional integration was planted five years ago with the aim of connecting the private sector in the east Africa region and to be the lead for the development of the region and sustainable peace. So we designed a regional program and started to engage on them. To this end, we have been working with the private sector in Ethiopia, Eritrea, Somalia, and Djibouti where the overall political environment in the region was suitable. Unfortunately things just collapsed and didn’t progress as projected due to several reasons. The situation is at a point where not only has it become difficult to trade between countries but also to trade within an individual country as well.

So for the time being we have decided to strategically stop our project between the east African regions and have now shifted our focus to strengthen national issues first.

Capital: Ethiopia is now planning to implement the largest inter-regional trade agreement, that is, the Africa Continental Free Trade Agreement. What’s your evaluation of Ethiopia’s participation given the current economic status?

Hailemelekot Asfaw: Close to six decades ago, the Organization of Africa Union was formed with the main aim to establish a united one strong African government. Of course that has not fully panned out and even in recent times there were some countries which desired to establish one African government and there are also countries who insist to create economic integration before political integration.

The establishment of the African Continental Free Trade Area (AFCFTA) in 2018 marked a significant milestone towards the realization of this vision, as it seeks to create a single market for goods and services across the continent, with the potential to boost intra-african trade and economic growth. However, challenges such as infrastructure deficits, regulatory barriers, and political instability still need to be addressed to fully achieve this goal.

Except Eritrea, all of the African countries have signed the agreement. And when it comes to Ethiopia this is so important for two reasons. The first is of course of political importance in that Ethiopia is in the fore front of promoting African issues, so again Ethiopia should be on the front in the implementation of the agreement. Secondly as a country we need to leverage the AFCFTA for our own economic empowerment. For example Ethiopia has a large population which is made up of more than 70 percent youth who can work and move from place to place. When it gets into full implementation, the AFCFTA will enable Ethiopians to move and work and invest in other African countries without restriction. There is a huge number of unemployed youth who will benefit from this. Furthermore, the AFCFTA will enable us to minimize cost of transportation as we will export and promote our goods and service within our continent. There are arguments that the implementation of AFCFTA will challenge the local private businesses but such arguments are not valid.

We can take the banking sector as an example. In the past, opening up the financial sector to private operators was met with lots of disagreements as some experts cited that it was a bad decision. However through time with the opening of the sector to private operators we have seen lots of changes that occur in the sector including the increase in competition, which has led to better services and products being offered to customers. Additionally, the opening up of the sector has also resulted in increased investment and growth opportunities, which is now being reflected in the telecom sector.

I can sum up the argument as saying that these area all imaginary fears, and we cannot know it is doesn’t work unless we try it. Therefore, it is important to embrace change and innovation in order to foster economic development and progress. It is crucial to have a forward-thinking approach towards such changes rather than being held back by fear of the unknown.

Capital: What are your views on the current investment flows in Ethiopia?

Hailemelekot Asfaw: Most of the private sector in Ethiopia is now working in fear, but as we all know by now, business needs trust. It is pivotal for government to build and gain trust from the private sector. Without this businesses will continue to operate in fear and there will be hesitance in invest in the country's economy. Without trust, the private sector investment and growth will be limited, hindering the country's economic development. Therefore, the government needs to take measures to create a conducive environment that fosters trust and confidence among private sector actors. Building trust with the private sector requires transparent policies and consistent enforcement of regulations. More than anything, there should be the rule of law and peace. When the local private sector has trust in their country, they increase their investment, operation and gain incentives, and then foreign investment will also increase in view of the thriving local business. Therefore, it is crucial to address the issues that are causing local businesses to close and restore trust in the country's economy. This will not only encourage local private sector investment but also attract foreign investment, leading to economic growth and development.

Capital: Do you think the situation Ethiopia is in will improve?

Hailemelekot Asfaw: Nowadays, we are having a bit of a conundrum with this generation in that it doesn’t have hope in its country, which has led to motives such as the younger population’s participation in conflicts. I think we have to know that we are not the first to be in conflict. Many countries have been in internal or external conflicts; even most of Ethiopia's history is full of war or conflict. However, what makes recent conflicts different is that now we are in a world where issues can be solved through discussion, and when we see the overall damage resulted due to the conflict, it is even more difficult to set the exact numbers of deaths; even the minimum estimations we are hearing are too large compared to the lives we have lost in all of the wars Ethiopia has ever been in.

Also, the economy has been highly shaken, not only in the areas where the war occurs but also all over the country.

Surprisingly, the economy didn’t collapse; it has been moving even though it was staggering. Here we are talking about 120 million people, and even though we are in darkness, we cannot give up.

Lots of people try to give their own explanation for the outbreak of the conflict or the war, trying to put the guilt on one side, but one thing we need to know is that at the end of the day, we are all Ethiopians; we are the owners of the problem and the result too. As we bring the war, we also have to bring the solutions and recover. Maybe some people who have the capacity and access can move to another place, but all 120 million people cannot move from their country. We have to have hope; we have to work to recover our economy; there should be a stable environment for citizens to work and support their lives; they have to be able to move from one place to another freely and peacefully; and so on. So that citizens can prevent themselves from participating in conflicts. Furthermore, it is important to provide equal opportunities and access to resources for all citizens, regardless of their social status or background. This will not only promote economic growth but also reduce social tensions and promote a sense of unity among the people.

Capital: Ever since the two sides inked the peace deal, different organizations has been giving several recommendations in sustaining the business and economy in the war affected areas. The government has also been announcing several plans to support the private sector on the same. What are your views on the implementation of these recommendations and plans?

Hailemelekot Asfaw: Most of these problems we are facing now are the result of our economic situation, poverty, and unequal distribution of resources. This is the root cause but of course there are also secondary reasons. But in all these, there is a general consensus that it is a must to create a suitable economic development, fair distribution of resources, create job opportunities and so on. So this is a shared problem which we should address together.

For me the major concerning area is the economic issue, we cannot continue with the current status where the economic relation and trade between communities and inter regional trade relations are not smoothed. There are lots of challenges we are facing but we should not sit and talk about challenges, we have to find out our priorities and embark on working on the solution. For example, if we solve our economic problems, we may minimize the political confrontations. As I pointed out earlier, there are lots of reasons for conflict, so solutions should include the society that lives in the conflict areas for optimal and sustainable solutions.